Greece and eurozone in stalemate over debt burden

Greece and eurozone in stalemate over debt burden

First serious negotiations between country and EU finance ministers fail even to build framework for future talks

Ian Traynor in Brussels

Thursday 12 February 2015 / http://www.theguardian.com/world/2015/feb/12/greece-eurozone-debt-stalemate

The Greek government’s confrontation with its eurozone creditors over its campaign to relieve its staggering debt burden while relaxing the terms of five years of austerity resulted in stalemate late on Wednesday.

The first proper negotiations between Greece and eurozone finance ministers failed to make any progress or result in a joint statement. While no immediate agreement had been expected, the emergency meeting had been tipped to produce a framework for talks to be finessed over the next few days before another meeting next Monday.

Jeroen Dijsselbloem, the Dutch finance minister who chaired the Brussels meeting, announced that this aim was not met. It appeared that the new leftwing government in Athens was isolated in seeking to extract better terms from Europe.

Alexis Tsipras, the new Greek prime minister, seems to have ordered his finance minister, Yanis Varoufakis, to stand firm against the pressure to make any concessions. Tsipras is due in Brussels on Thursday for his debut on the European stage at an EU summit.

Following 10 days of touring Europe in a failed attempt to woo Berlin, Frankfurt and other key capitals to alter the terms of trade between Athens and the eurozone, Varoufakis went into negotiations with the other finance ministers at a specially convened session in Brussels. Entering and leaving the meeting, he was uncharacteristically taciturn.

The stalemate could see Greece running out of cash next month, unilaterally defaulting on the bailout programme with the European Central Bank, the European Commission and the International Monetary Fund, and being forced to leave the single currency. That prospect is viewed as a disaster fraught with risks in Brussels, Paris and Rome. But Berlin, whose voice matters more than most in the negotiations, is reliably said to be “extremely relaxed” about the Greek crisis and opposed to tearing up the agreements that Greece is formally bound to under the bailout terms.

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“We have a programme,” said Wolfgang Schaeuble, the powerful German finance minister.”

“The programme is either brought properly to an end or there is no programme. There can be no financing without conditionality,” said a senior EU diplomat.

The Germans had signalled that they were in listening mode, putting the onus on Varoufakis to deliver detailed proposals on what Athens wants. Tsipras, who was elected on an anti-austerity platform, has repeatedly insisted that the current Greek bailout programme will not be extended from the end of the month, despite intense eurozone and German pressure to do precisely that.

Apart from the longer-term problems of rebuilding a wrecked economy while labouring under unsustainable debt levels of 175% of gross domestic product, Greece has an immediate short-term financing crisis that may come to a head on March 1 if there is no breakthrough. The current bailout programme expires on February 28.

Varoufakis has acknowledged the short-term funding gap by calling for bridging finance from the eurozone to see Greece through until the end of May and to supply breathing space for the elaboration of a new and less onerous funding deal with the eurozone tied to economic reforms at home.

While most analysts expect a deal in the end, the brinkmanship on both sides could easily lead to blunders and breakdown.

“A deal may still be possible, but the Greek side will have to move most,” said Guntram Wolff, head of the Bruegel thinktank in Brussels.

It is not only northern German-led fiscal hawks who are resisting Tsipras’s demands. Spain and Portugal, having also been bailed out and gone through their own punishing austerity programmes, show no sign of being generous to the Greeks.

The conservative Spanish government is particularly concerned that concessions to Greece could boost support for its own leftwing anti-austerity movement, Podemos, which is leading in the opinion polls ahead of general elections later this year. Portugal, though, is worried about a possible Greek exit from the eurozone, fearing the precedent it would set for weaker single currency members.

France and Italy, meanwhile, though broadly sympathetic to an easing of fiscal rigour, have been irritated by Tsipras’s megaphone diplomacy, seen in Brussels and elsewhere as importunate, hubristic and counter-productive.

But Pierre Moscovici, the EU commissioner for financial affairs and a former French finance minister, and Michel Sapin, his successor in Paris, both emphasised that the Greek election had changed the equation. “Greece’s place is in the euro,” said Moscovici.