quinta-feira, 11 de fevereiro de 2016

New Greek bailout, same as the old Greek bailout

New Greek bailout, same as the old Greek bailout

Bad news for Europe: Greek debt is back on the agenda.


BERLIN — A quorum of Europe’s leading financial technocrats gathered last week for the painful ritual of assessing the status of Greece’s bailout.

The meeting followed a familiar script: Greece’s creditors complained Athens had yet to deliver the required data. The Greeks protested, explaining that they had sent the information — the night before.

Greece is back. Just not in the way Europe had hoped.

Six months after receiving a third make-or-break bailout, Greece is again veering off course, sparking concerns among creditors that Athens is reverting to the bait-and-switch tactics that took the country to the brink last summer.

At issue is the evaluation of Greece’s reform progress. In order to receive further installments as part of its latest rescue, which could be as much as €86 billion, Greece needs a passing grade. Creditors say the delays in providing data and other information, common during Greece’s previous reviews, are little more than transparent tactics meant to slow down and complicate the process.

Greek Finance Minister Euclid Tsakalotos said Monday he expected the review, originally scheduled for the fall, to be completed within weeks.

Athens blames the Washington-based organization for imposing harsh remedies on the Greek economy that have done more harm than good
Yet Greece’s creditors, a group that includes other eurozone countries, the International Monetary Fund and the European Central Bank, maintain the review is nowhere near complete and worry Prime Minister Alexis Tsipras is preparing for another extended confrontation over the bailout terms as pressure builds on his leftist government to reject the planned spending cuts.

Greece’s next major debt repayment is on July 20, when about €2.3 billion in bonds held by the ECB become due. The review, overseen by technical experts from the European institutions and the IMF, must be concluded well before then in order for the funds to be released on time.

“If the review is due for completion in May or June, we will be in serious trouble,” Tsakalotos told MPs in Athens Monday.

Unreasonable demands

One reason for the rush is the IMF. Though party to previous bailouts, the fund has said it would only join the latest rescue if convinced Greece’s debt load is sustainable. It can only make that determination once the review has been completed.

Greece would prefer for the IMF not to participate.

Athens blames the Washington-based organization for imposing harsh remedies on the Greek economy that have done more harm than good. But Germany has made its continued participation in rescue contingent on the IMF joining. If the IMF backs out, Chancellor Angela Merkel would have difficulty winning approval for further disbursements from the Bundestag, the German parliament.

Tsipras met with German Chancellor Angela Merkel in London last week and will meet French President François Hollande in Paris next week before the European summit to try to resolve the impasse.

Tsipras’ trump card may be the refugee crisis. Berlin is desperate to reduce the influx from Turkey and has been pressuring Athens to do more to help manage the crisis by registering the refugees and patrolling its coastal border with Turkey. Some European officials speculate privately that Tsipras could make leniency on Greece’s review a condition for his cooperation in dealing with the refugees.

Greek officials reject suggestions that they are responsible for delays in completing the review, insisting that they have acted in good faith. They accuse Germany and its northern European allies of making unrealistic demands in the hope of toppling the government.

The election of Kyriakos Mitsotakis, a pro-reform free marketeer, to the leadership of the opposition New Democracy party last month has presented creditors with an attractive alternative to Syriza, Tsipras’ allies argue. The center-right New Democracy, a member of the European People’s Party bloc alongside Merkel’s Christian Democrats, has pulled ahead of Syriza in some recent polls.

Such conspiracy theories have been a common refrain throughout Greece’s long-running debt crisis and have generally proved to be wide of the mark.

Pension pushback

What is clear is that Athens has yet to fulfil key markers in the bailout agreement it reached with creditors in July.

Under the agreement, Greece should have established a €50 billion privatization fund to pay down its debt by the end of 2015. The move, widely viewed in Greece as a fire sale of state property, requires a complicated thicket of legislation before it can go forward. The fund is particularly important to Germany and France, which made the privatizations a condition for a deal during the all-night negotiations that led to the bailout in July.

Economists warn the increased contributions, tantamount to a futher tax increase, could dent Greece’s fragile economy.
Creditors also complain that Athens has made little headway in pushing through the promised reform of the federal administration, a bloated bureaucracy plagued by years of patronage.

Athens’ biggest challenge, however, is pension reform. Creditors want Greece to cut existing pensions, arguing that doing so is necessary to put Greek debt on sustainable footing. Greece spends the equivalent of about 15 percent of its GDP on pensions, nearly double the average for other advanced economies. Shortfalls in recent years have put enormous strain on the government’s budget.

Tsipras has so far refused to make cuts, proposing instead to raise pension contributions for future retirees. Pensioners comprise a key Syriza constituency and Tsipras can’t afford to lose their support. He also argues that many Greek families are now surviving on a single pension and that further cuts would only exacerbate the poverty that has hit many in the country in recent years.

But raising contributions is no less controversial.

Economists warn the increased contributions, tantamount to a futher tax increase, could dent Greece’s fragile economy.

Greeks have returned to the streets in force in recent weeks to protest the proposed pension reform. Hardest hit would be the self-employed, including many doctors, lawyers and other professionals, as well as farmers.

Opponents of the reform staged a general strike last week that effectively shut down the country. The upheaval has renewed doubts over Greece’s prospects. In recent days, yields on Greek government debt, a key indicator of investor confidence, have shot up, reflecting the unease. Greece’s stock market, meanwhile, fell to its lowest level since 1989 this week.

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