segunda-feira, 1 de fevereiro de 2016
Why we’re not safe from Grexit yet
LETTER FROM ATHENS
Why we’re not safe from Grexit yet
Between economic recovery and an escalating migration crisis, Greece faces a tumultuous year ahead.
By MEGAN GREENE 2/1/16, 5:30 AM CET
ATHENS — A team of analysts from one of the main credit rating agencies smiled condescendingly across a boardroom table one recent afternoon, when asked about the likelihood of a Greek exit from the euro. It was clear they dismissed the idea. There is virtually no chance of Greece leaving the eurozone, they assured me.
This is not the first time that credit rating agencies have fallen asleep at the switch. Greece’s struggles to complete its first bailout review and simultaneously manage the arrival of thousands of refugees on its shores are likely to come to a head this summer. And you can bet Grexit will be back on the table.
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Almost exactly a year after Syriza rocked the Greek political establishment by winning the January 2015 general elections, international news outlets have all but dropped the subject of Greece’s fiscal profligacy that so dominated headlines in 2015. But this is unlikely to last. Greece’s creditors are heading to Athens this week to discuss Greece’s first review under the third bailout program.
As has been the case many times before in Greece, this review should already have been completed and the funds released.
The main sticking point is pension reform. The third bailout program calls for pension cost savings of 1 percent of GDP in 2016. The government has implemented measures achieving two thirds of that the target so far, leaving a gap of roughly €600 million.
Syriza’s plans to make up the gap include higher contributions from farmers and the self-employed, an unpopular proposal that has led to widespread protests across the country. Considering that, according to the Small Enterprises’ Institute, more than 50 percent of Greek households relied on pensions as their main source of income in 2015, it’s no wonder pension cuts are a particularly toxic issue in Greek politics.
Protests haven’t seriously threatened government cohesion so far, but that could change: With only a three-seat majority in parliament, the Tsipras government has little room to maneuver. If the coalition loses its majority, government cohesion will suffer significantly.
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There are a number of reasons why we can expect creditors to play hardball with Greece. First of all, the risk of pushing the current government to the point of collapse is no longer the deterrent it once was. Since the beginning of the Greek bailouts in 2010, successive governments argued the creditors were better off negotiating with them than with an anti-bailout opposition party. This argument no longer holds true.
With Kyriakos Mitsotakis newly elected at the helm of the opposition New Democracy, there is now a viable alternative for a prime minister who is relatively constructive on the bailout. Arguably, some creditors might prefer to deal with Mitsotakis than with Tsipras.
Merkel and Tsipras agreed that the only rational way forward was for Greece to leave the eurozone. If they came to that conclusion once, it’s possible they’ll come to it again.
Secondly, the IMF has not yet decided if it will participate in the third bailout. It has said it would only be willing to take part if Greece’s debt is sustainable, which either entails debt relief or an even more painful fiscal adjustment for Greece. So far the other creditors have shown little appetite for debt relief. Eurogroup chief Jeroen Dijsselbloem recently said the eurozone may be able to consider debt relief for Greece in 10 or 15 years.
The IMF is therefore likely to drive a very hard bargain on the fiscal adjustment Greece must undergo. The IMF can rely on support from Germany in particular. German Chancellor Angela Merkel has been insistent on IMF participation in the third bailout to give her political cover with the Bundestag.
Thirdly, Greece’s debt crisis is only one of a number of crises that Europe currently faces, among which the overwhelming influx of refugees, Britain’s renegotiations on its position in the Union, and the ongoing Ukrainian crisis loom large.
The Greek government seems to think that this means Merkel, who has come under increasing political pressure for her stance on refugees, will offer Greece concessions to close the first review without too much trouble. But given the toxic politics between the two countries, the opposite seems more likely.
At one point during the negotiations for the third bailout program, Merkel and Tsipras agreed that the only rational way forward was for Greece to leave the eurozone. If they came to that conclusion once, it’s possible they’ll come to it again.
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The hard deadline for agreeing the first review and releasing funds for Greece is when Greece runs out of money and cannot afford a debt repayment. This will come in July, when Greece has over €3.5 billion in debt to roll over.
But by late July, Greece could be a fundamentally different country. The flow of refugees from the Middle East slowed from over 200,000 in October 2015 to over 50,000 in January 2016 but is likely to pick up again as the weather improves. Other EU countries have complained that Greece is not following the rules on setting up hotspots and registering refugees that come across the Aegean via raft from Turkey.
Tsipras will have a hard time making concessions to the creditors while keeping his government together in the face of rising euroskepticism.
The German chancellor’s open-armed welcome to refugees arriving in Europe, over 1 million of whom came to Germany, was called into question by the mass sexual assault in Cologne on New Year’s Eve in which most of the suspects were asylum seekers. With her popularity dwindling and an upcoming general election in Germany in 2017, Merkel is looking for ways to stem the flow of refugees.
Rather than reintroducing Germany’s national borders, a more politically appealing option for Merkel would be to outsource border closures to Macedonia and Bulgaria, stranding a number of asylum seekers in Greece.
Redrawing the Schengen boundaries to exclude Greece would deal a major blow to the country’s relations with the EU. If Greece fails to fulfill its commitments to protect its borders and establish hotspots for refugees, goodwill among creditors to find agreement on the bailout negotiation in July will in short supply.
And among Greeks, anti-EU sentiment is likely to grow as the country is forced to handle the brunt of a refugee crisis not of its own making and without sufficient financial and political support from the rest of Europe. Tsipras will have a hard time making concessions to the creditors while keeping his government together in the face of rising euroskepticism.
German finance minister Wolfgang Schäuble outlined the creditor’s attitude towards Greece at the World Economic Forum in Davos when he glibly told Tsipras, “It’s the implementation, stupid.” It seems unlikely the creditors will be willing to cut Greece much slack in this bailout review. Tsipras will have a hard time implementing what is being asked of him without his government collapsing.
As Greece faces a financing crunch in July, it will also likely see the influx of refugees hit fever pitch. In the absence of a coherent and effective European migration policy before July, it’s hard to imagine Greece avoiding expulsion from Schengen — and with the new line for Europe drawn at Greece’s northern borders, Greece will be one step closer to being out of the European project.
Last summer, Schäuble suggested Greece take a temporary break from the eurozone, and relations between Germany and Greece have only deteriorated since. It is likely Schäuble will put his proposal back on the table this summer. Greece’s fate may ultimately be determined by how much solidarity there really is in Europe — in which case, the future looks grim.
Megan E. Greene is chief economist and managing director of Manulife.