Greece’s
debt crisis looks familiar, but consequences may be worse
The
mother of all EU crises has been gathering steam again
YESTERDAY by: Peter
Spiegel in Brussels / 21-4-2016
While Europe’s
political class has been consumed with preventing refugees from
entering the EU and Britain from exiting, the mother of all EU crises
has slowly and quietly been gathering steam again: Greece.
Eurozone finance
ministers will meet on Friday after yet another round of fruitless
talks in Athens where almost nobody agreed on the way forward.
And just like the
Greek crisis that gripped the EU last year, there is a hard stop
arriving very soon: unless Athens receives its next round of bailout
aid, it risks defaulting on €3.5bn in debt payments in July,
raising anew the agonising prospect of Grexit.
How could this be
happening again?
After a series of
increasingly desperate summits nearly a year ago, EU leaders agreed
an €86bn bailout that pulled Greece back from the brink. Just
months later, a chastened Alexis Tsipras, the far-left prime minister
who made his political bones railing against two similar EU rescues,
won re-election promising to implement the harsh fiscal measures
included in a third programme.
European Commission
officials were touting Mr Tsipras as a changed man; shorn of his
ornery finance minister Yanis Varoufakis, Brussels convinced itself
that the long-time radical had transformed into a diligent economic
reformer.
But they overlooked
the political realities in Athens — not to mention the financial
realities of the bailout.
In fact, last
summer’s deal was less a cure-all for Greece’s economic woes than
a collective kicking of the can down the road. It avoided default by
loaning Athens €13bn very quickly in exchange for a narrowly
focused set of pension and tax reforms.
Even then, much of
the heavy lifting was put off until the new programme’s first
quarterly review — including the politically combustible issue of
debt relief. As if to underline how ephemeral the deal was, the
International Monetary Fund made clear it was not participating and
would put off any decision on whether to join until it was certain Mr
Tsipras, who had become the first leader of a developed country to
default on an IMF payment, would live up to his commitments.
That first quarterly
review has now stretched into two additional quarters, and the
three-dimensional stand-off between Athens, Berlin and the IMF has
only deepened.
While the IMF has
demanded a restructuring of Greece’s debts, Germany has suddenly
decided that no debt relief is needed at all. Still, it has insisted
the IMF participate anyway.
Meanwhile, the IMF
has decided the agreement reached in July was badly constructed and
should have lower budget surplus targets.
As for Mr Tsipras,
he has returned to an angry, defensive crouch, railing against
outside forces.
There is little
political capacity in Athens to push through additional reforms or
spending cuts even if Mr Tsipras wanted to.
“Europe’s
politicians have been distracted with other challenges and markets
have become complacent about the inherent risks in Greece’s new
bailout,” said Mujtaba Rahman, head of European analysis at the
Eurasia Group risk consultancy. “But if Berlin doesn’t revise its
approach, this is going to blow up in everyone’s faces.”
Greece has defied
doom-mongers — now the IMF must do its bit
After six years of
recession, we are laying the foundations for recovery, writes Alexis
Tsipras
The players, the
arguments and even the choreography have changed little since last
year. But the consequences of failure may have.
A year ago, EU
leaders felt confident they had ringfenced Greece and that a Grexit,
while severely damaging to the Greek economy, would have little
impact on the rest of the eurozone.
Now, however, they
are deeply worried about the prospect of a failed EU member state
with 50,000 Syrian, Iraqi and Afghan refugees stuck in deteriorating
camps — a state the rest of the bloc is looking to as a front line
against the influx of migrants into Europe.
And then there’s
Britain. Senior EU officials are acutely aware that another ugly
Greece fight just as Britons go to the polls on June 23 to decide on
whether to stay in the EU would not help their cause. One official
involved in the talks said Euclid Tsakalotos, the Greek finance
minister, has been warned to wrap up a deal by the end of May — or
be ready for radio silence until June 24.
In the end, these
pan-European political realities make another Greek agreement all the
more likely. But that does not mean it will be pretty.
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