Greek View on Austerity Worries Other Governments

Greek View on Austerity Worries Other Governments

By JAMES KANTER and LIZ ALDERMANFEB. 15, 2015 / http://www.nytimes.com/2015/02/16/business/international/greek-view-on-austerity-worries-other-governments.html?_r=0

BRUSSELS — As Greek officials gird for a showdown with their European partners on Monday, Prime Minister Alexis Tsipras’s resistance to austerity has fueled political tensions in other countries that adopted severe belt-tightening during Europe’s debt crisis, prompting their leaders to harden their opposition to demands from Athens.

In recent days, the governments of Ireland, Spain and Portugal have formed a united front with Germany, Finland and the Netherlands in negotiations over whether the other 18 countries in the eurozone will agree to extend or end Greece’s bailout of 280 billion euros, or $319 billion.

As a result, a definitive breakthrough at the meeting Monday of eurozone finance ministers, including a plan laying out a long-term path to stabilize the situation, seems unlikely. Despite talk of a compromise with Greece at a European Union summit meeting late last week, eurozone leaders are still pressuring Greece to ask to extend a bailout that Mr. Tsipras appears determined to scrap or replace. Another option that eurozone leaders are pressing involves an interim deal for Greece that could lead to a third rescue package later this year.

As the wrangling continues, the response of European governments has as much to do with domestic politics as it does with regional economics.

“Incumbent center-right governments across Europe know that facilitating a positive outcome for the Greek government will not assist their own prospects of re-election,” Noel Whelan wrote in his weekly column for The Irish Times. “Having implemented various types of what they see as successful austerity programs in their own countries, they’ll be damned if they are going to let the Greeks give credence to the suggestion that there was or is an alternative way.”

To be sure, European leaders are exasperated with what many see as intransigence by Athens.

“We are beginning to run out of patience with Greece,” Prime Minister Alexander Stubb of Finland said last week. Any deviation from Greece’s commitments, he added, “would be a form of injustice for countries such as Ireland, Spain and Portugal,” which have also made considerable efforts in exchange for international aid programs.

In Portugal, which recently exited a €78 billion international bailout that came with stringent conditions, the government is worried that concessions to Athens would be politically damaging in an election year because it would make the austerity that the Portuguese have suffered seem unnecessary.

If Mr. Tsipras gets creditors to agree to roll back austerity, Portugal’s opposition parties would say: “You failed because we have been told we need a very, very difficult austerity and the Portuguese or Spanish people suffered a lot, and then this was not really necessary,” Paulo Rangel, a member of the center-right party of Prime Minister Pedro Passos Coelho, said in an interview. “The opposition parties would say that both the majority parties haven’t done what they should have done during these years to create a kind of partnership between the peripheral countries to try to change the path of policies of the European Union.”

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Most Portuguese believe that Greece already has easier bailout conditions than Portugal or Ireland, said Mr. Rangel, who is also a member of the European Parliament. So a victory for Mr. Tsipras would dramatically ratchet up the pressure on his party ahead of this year’s national elections.

“The results of these negotiations between Greece and the European institutions will have a very, very high impact in the political campaigns,” he added.

The Irish government faces a similar challenge. Ireland became the first eurozone country to take a bailout from the troika of the European Central Bank, the European Commission and the International Monetary Fund. Recently released documents suggest that the European Central Bank pressured the Irish government to take a €67.5 billion emergency line of aid in 2010 — in exchange for agreeing to harsh austerity terms — partly to protect Irish banks’ senior bondholders from losses and preserve confidence in the European banking system.

While austerity depressed Ireland’s economy for several years, the country returned to borrowing in international bond markets in 2013, an achievement that Prime Minister Enda Kenny touted as the result of the government’s sticking to targets for reducing the debt and deficit. Last week, Finance Minister Michael Noonan said Mr. Tsipras was making “impossible” demands for debt relief, and he admonished the new government for blaming creditors for Greece’s problems.

But Irish opposition parties are arguing that their country, too, should have pushed back against creditors.

“Like Greece, Ireland has suffered enormously under the austerity program imposed by the troika, a program that has seen our national debt rise significantly while vital services are cut, new taxes and levies are imposed,” a group of Irish lawmakers wrote in a letter to Mr. Kenny on Friday.

“While both Ireland and Greece have the potential to be again among the strong in Europe, currently — and despite the spin and propaganda emanating from Ireland — we are both among the weak,” the lawmakers added. “If we’re to regain our rightful position we need debt write-down, and the same applies to many other E.U. countries.”

In Spain, the anti-austerity party Podemos has gained ground on similar oratory, presenting a rising challenge to Prime Minister Mariano Rajoy, whom Chancellor Angela Merkel of Germany praised recently for sticking to belt-tightening policies that have helped mend Spain’s tattered finances.

Last week, at a closed-door meeting in Brussels where Mr. Tsipras explained to European leaders why his country needed a radically different approach, Mr. Rajoy struck back.

He said the Greek demands were totally unacceptable for the Spanish, who had also faced profound economic challenges, according to European Union officials with direct knowledge of the comments and who spoke on condition of anonymity because such gatherings are private.

“Mr. Rajoy was a little nervous during the summit,” Mr. Tsipras said at a news conference later that night. “There’s no point to, shall I say, externalize your domestic worries,” he added in a thinly veiled reference to the threat Podemos poses to Mr. Rajoy’s party.

Mr. Rajoy was taking the “wrong approach” because Spain’s problems “will be solved in Spain by following and implementing policies that will be accepted by its own people,” Mr. Tsipras said.

James Kanter reported from Brussels, and Liz Alderman from Paris.