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Europe's
liberal illusions shatter as Greek tragedy plays on
Voters
across Europe have got the message from the way in which Greece’s
opposition to austerity was crushed
Larry Elliott
Economics editor
Sunday 1 May 2016
11.46 BST
Greece is running
out of money. The government in Athens is raiding the budgets of the
health service and public utilities to pay salaries and pensions.
Without fresh financial support it will struggle to make a debt
payment due in July.
No, this is not a
piece from the summer of 2015 reprinted by mistake. Greece, after a
spell out of the limelight, is back. Another summer of threats,
brinkmanship and all-night summits looms.
The problem is a
relatively simple one. Greece is bridling at the unrealistic demands
of the European commission and the International Monetary Fund to
agree to fresh austerity measures when, as the IMF itself accepts,
hospitals are running out of syringes and buses don’t run because
of a lack of spare parts.
Athens has already
pushed through a package of austerity measures worth €5.4bn
(£4.23bn) as the price of receiving an €86bn bailout agreed at the
culmination of last summer’s protracted crisis and expected the
deal to be finalised last October.
Disbursements of the
loan have been held up, however, because neither the commission or
the IMF believe that Greece will make the promised savings. So they
are demanding that Alexis Tsipras’s government legislate for
additional “contingency measures” worth €3.6bn to be triggered
in the event that Greece fails to meet its fiscal targets.
This is almost
inevitable, given that the target is for the country to run a primary
budget surplus of 3.5% of gross domestic product by 2018 and in every
year thereafter. This means that once Greece’s debt payments are
excluded, tax receipts have to exceed public spending by 3.5% of GDP.
The exceptionally onerous terms are supposed to whittle away Greece’s
debt mountain, currently just shy of 200% of GDP.
If this all sounds
like Alice in Wonderland economics, then that’s because it is.
Greece is being set budgetary targets that the IMF knows are
unrealistic and is being set up to fail. It will then be punished
further for being unable to do what was impossible in the first
place.
Predictably enough,
the government in Athens is not especially taken with this idea. It
has described the idea as outlandish and unconstitutional, but is in
a weak position because it desperately needs the bailout loan and
threw away its only real bargaining chip last year by making it clear
that it would stay in the single currency whatever the price.
So Tsipras is doing
what he did last year. He is playing for time, hopeful that by
hanging tough and threatening another summer of chaos he can force
Europe’s leaders to offer him a better deal - less onerous deficit
reduction measures coupled with a decent slug of debt relief. For the
time being though, the matter is being handled by the eurozone’s
finance ministers, who want their full pound of flesh.
The mood is
especially unyielding in Germany, where Angela Merkel’s popularity
has suffered as a result of her open door policy toward refugees.
Faced with growing hostility, she has concluded that this is not the
time to show any signs of weakness. She has sought to mollify German
voters by giving her finance minister, Wolfgang Schäuble, a free
hand to ratchet up his criticism of the stimulus policies Mario
Draghi is pursuing at the European Central Bank, and by insisting
that there should be no debt relief for Greece until Tsipras has done
everything demanded of him.
Merkel must pray
that the lid can be kept on Greece until after 23 June, because it is
hard to see how a repeat of last summer’s argy-bargy would help
keep Britain inside the EU - rather more important to Germany in the
long term than a few billion euros of debt relief.
The reason is that
David Cameron can only win his referendum by securing the votes of
non-Conservative supporters, for some of whom the handling of Greece
exemplifies everything that is wrong with the EU - its lack of
democracy, hyper-conservative economic agenda and insistence that the
single currency is a great success when in fact it has proved to be a
colossal failure.
Greece received the
first of its three bailouts six years ago, when the terms were
negotiated in the weekend following Britain’s general election.
Gordon Brown was on his way out, but the then chancellor Alistair
Darling went to Brussels to discuss the deal with fellow EU finance
ministers.
Since then, there
have changes of government in all the big EU countries bar Germany,
and most of the smaller ones as well. Voters showed their unhappiness
by getting rid of the centre-right in France and the centre-left in
Spain. They waved goodbye to Silvio Berlusconi in Italy and Mark
Rutte in the Netherlands.
It has been all
change at local level, but no change in Brussels and Frankfurt, where
the officials responsible for the eurozone’s bone-headed policies
carry on regardless. Voters across Europe have got the message from
the way Greece’s opposition to austerity was crushed - you can vote
for whoever you like, but it won’t make any difference.
The revolt against
the status quo explains why Spain can’t form a government, the two
parties that have dominated Irish politics since independence could
barely muster more than 50% of the vote in the recent election, the
runoff for president in Austria is between the greens and the far
right and Marine Le Pen has support in France.
To be sure, this is
not a phenomenon exclusive to the eurozone. There is marked hostility
to the US political establishment, and it is clear that many voters
in the UK simply do not believe the government’s warnings about the
economic risks of Brexit.
The situation in the
eurozone is worse, however, in part because the democratic deficit is
so marked, in part because economic performance has been woeful and
in part because there has been a dogged insistence on continuing with
policies that have been both ineffective and unpopular.
As Dan Atkinson and
I argue in our forthcoming book about the failure of the single
currency,* Greece was the point where progressive illusions were
shattered. Until last summer it was just about possible to believe in
a cuddly European polity dedicated to higher living standards, full
employment and more generous welfare states.
Then a gun was held
to Greece’s head. Tsipras was faced with a choice. Ignore what the
people want or see your banks go bust. This in a country which had
seen the economy shrink by a quarter in five years. Difficult to spot
what was awfully progressive about sucking spending power from an
economy woefully short of demand. Then or now.
*Europe isn’t
working, by Larry Elliott and Dan Atkinson, Yale University Press
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Greek
MPs approve toughest austerity measures yet amid rioting
Crucial
meeting of euro zone finance ministers will be held on Monday amid
backdrop of violence in Athens over cuts worth €5.4bn
Helena Smith
Sunday 8 May 2016
20.21 BST
Greece’s
leftist-led coalition will turn to the lightning rod issue of debt
relief on Monday at a crucial meeting of euro zone finance ministers
following the late-night approval in Athens of laws overhauling the
country’s tax and pension system.
Amid violence on the
streets and a three-day general strike that had brought much of the
country to a halt, the embattled government pushed the legislation
through parliament with the backing of its 153 MPS. Addressing the
300-seat House, prime minister Alexis Tsipras said: “We are
determined to make Greece stand on its two feet at any cost.”
Rioters pelted
police with stones while black-clad anarchists lobbed flaming Molotov
cocktails, after Athens’s finance minister warned Greece could
become a “failed state” if it was pushed too far.
The controversial
bills, worth €5.4bn in budget savings, were seen as the toughest
reforms the thrice bailed-out nation has been forced to enact since
its debt crisis began. The once firebrand Tsipras called the vote in
advance of tortuous bailout negotiations being concluded in a bid to
placate euro zone finance ministers ahead of Monday’s meeting.
In an unprecedented
step, lenders are expected to focus on the nation’s staggering debt
load – at over 180% of GDP the largest in Europe with Athens keen
to secure a pledge that a write-down is in the office.
But creditors are
also demanding a new set of contingency measures to ensure the
country achieves agreed stringent fiscal targets by 2018.
Public anger against
Greece’s lenders is palpable. “Every day they destroy our country
a little more,” said Vassilis Papadopoulos, a young waiter, of the
international creditors keeping the debt-stricken nation afloat.
Riot police
disperse protesters during clashes that broke during a protest
against reforms to the tax and pension systems. Photograph: Orestis
Panagiotou/EPA
“OK, I accept we
have to change but, like this, that’s not fair. How can anyone
survive on a national monthly pension of €384 (£303)? How can a
state function when over 25% of its population is unemployed?”
Ahead of Monday’s
eurogroup meeting meeting, finance minister Euclid Tskalotos warned
darkly of the perils involved in demanding yet more cuts of a nation
whose economy has shrunk by more than 25% in the six years since
successive governments began slashing budgets in return for bailout
aid.
“Nobody should
believe that another Greek crisis, leading perhaps to another failed
state in the region, could be beneficial to anyone,” he wrote in an
unusually dramatic letter to his eurozone counterparts. “There is
no way that such a package can be passed by the current government,
or by any democratic government that I can imagine.”
For a time, it
seemed, Greece’s economic woes had gone away. Eclipsed by Europe’s
refugee crisis, terrorist attacks and the fears engendered by
Britain’s forthcoming EU referendum, Athens’s debt drama appeared
to disappear.
But policy-makers
are discovering that may have been wishful thinking. The nation that
last year came close to exiting the euro – triggering the
continent’s biggest existential crisis in decades – is once again
close to the brink.
Economists,
politicians and investors all speak of uncertainty – an uncertainty
reinforced by the wildly divergent views of creditors over how best
to put the country back on its feet.
Demonstrator
wearing a gas mask during the protests. Photograph: Angelos
Tzortzinis/AFP/Getty Images
Central to that
argument is Greece’s ability to achieve a primary surplus of 3.5%
by 2018. The International Monetary Fund, which believes the surplus
should be no higher than 1.5%, says substantial debt relief is the
only way the country can recover economically. On Friday the fund’s
managing director, Christine Lagarde, threatened to pull out of
Greece’s rescue programme altogether if Brussels failed to yield.
Athens has received more than €250bn in bailout funds in what has
amounted to the biggest financial rescue programme in global history.
Germany’s hardline
finance minister, Wolfgang Schäuble, fearing hefty losses on the
loans Berlin and other eurozone members have made, has steadfastly
ruled out debt forgiveness.
But Tsipras won
unexpected support at the weekend from Germany’s vice-chancellor,
Sigmar Gabriel. In a statement to Reuters, Sigmar, who is also the
economy minister, insisted debt relief was now the only way of
plucking Greece out of its seemingly endless economic death spiral.
“The eurogroup meeting on Monday must find a way to break the
vicious circle,” he wrote. “Everyone knows that this debt relief
will have to come at some point. It makes no sense to shirk from that
time and time again.”
The overhaul of the
pension system – along with unpopular tax measures and an increase
in VAT – form the central plank of a €5.4bn package of budget
cuts and reforms that Tsipras has agreed to enact in exchange for
rescue funds from a third, €86bn bailout the country signed up to
last summer.
After nine months of
wrangling over the latest austerity measures, the once firebrand
Tsipras had hoped Sunday’s vote would unlock further funds.
In July Greece faces
€3.5bn in debt repayments. Without bailout aid, once again it
confronts the spectre of default and likely ejection from the single
currency.
“We are, with a
little less drama, back where we were last year,” noted Christos
Memis, a veteran political commentator now in charge of news portal
Protagon.gr.
“The prime
minister and his aides are a little more mature, a little wiser. They
like power and I think are determined to come to an agreement with
Europeans but there are hurdles not least in Syriza,” he said of
Tsipras’ radical left coalition party.
With the UK’s
looming EU referendum, eurozone partners have made clear that bailout
negotiations have to be wrapped up by the end of May or be put on
hold until July when markets will once again be rattled by the
prospect of a Greek default.
Speaking to the
Guardian ahead of the vote, the culture minister Aristides Baltas,
said the unpopular reforms would be enforced even if no one believed
in them.
“Nobody in the
government agrees with this agreement but we have signed it and have
made a historical pledge to implement it,” said the French-trained
philosopher who played a pivotal role in drawing up the ruling
Syriza’s party’s founding programme. “We know it will be hard
for Greeks.”
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