Whispers
of ‘Grexit’ start again
With
Athens, EU creditors, and the IMF deadlocked on the bailout talks,
some fear a renewed crisis.
By SIMON
MARKS 1/25/17, 5:08 PM CET Updated 1/26/17, 9:25 AM CET
ATHENS — Two years
ago, Alexis Tsipras, the then 40-year-old leader of Greece’s Syriza
party, swept to victory in snap elections claiming an end to the
“vicious cycle of austerity” and years of “humiliation and
suffering.”
Now a veteran prime
minister, his campaign words couldn’t seem hollower.
Halfway through its
seventh year on financial life support from its European partners,
doubts are again mounting over not only the stability of Greece’s
government but its commitment to the long list of demanding reforms
involving its labor force, state-owned businesses and banking sector.
The country is in a race against time to make sure it can raise money
on capital markets on its own by mid-2018 — the end date of its
current €86 billion bailout package.
As Greece lurches
forward with the difficult reforms, the Eurogroup of EU finance
ministers is expected to conduct a “stocktaking” of the Greek
program on Thursday at a meeting in Brussels.
But in dozens of
conversations with shopkeepers, business owners, students and the
unemployed in Athens in recent days, it’s clear that the Greeks’
disappointment with Tsipras’ broken or undelivered promises is
overwhelming.
“We’re sick of
politicians,” said Christos Kotsakis, who works at a newspaper
kiosk in downtown Athens. “No matter who’s voted in, it’s the
same old game. Left wing or right wing, nothing changes and Tsipras
is no different.”
Syriza’s main
opposition party, New Democracy, smells blood with opinion polls
giving Tsipras’ party its lowest levels of support since its
convincing victory in the January 2015 elections. Tsipras’
leadership is also eroding from the insubordinate behavior of members
of his own party who oppose the reforms, as seen earlier this month
when his transport minister, Christos Spirtzis, decided to skip the
signing ceremony of the state-owned TrainOSE railway network’s
takeover by Italy’s Ferrovie Dello State Italiane for €45
million.
Lackluster economy
The biggest problem
for Tsipras, however, is the still lackluster state of the economy.
Although the official GDP growth figure for 2016 is not out yet, a
November estimate by the European Commission put it at -0.3 percent.
What little growth
momentum 2016 saw was, in the most part, generated by a
record-breaking tourism season in terms of the number of new
arrivals, according to Jens Bastien, an independent economic analyst
based in Athens and former member of the Commission’s task force on
Greece. But he said the sector has limited room for additional growth
— be it due to power cuts on popular islands like Santorini or poor
infrastructure at provincial airports.
Credit flows to
businesses have not yet turned positive, after years of decline.
Limitations in the
tourism sector are not being countered by growth elsewhere. There is
still no pick-up in construction permits, and the retail sector
continues to stagnate. Consumer spending is also restrained by recent
tax hikes on both property and wages. Moreover, credit flows to
businesses have not yet turned positive after years of decline.
As a result, the
Greek finance ministry’s estimate of 2.7 percent GDP growth for
2017 is “not shared by many, neither in Greece nor on the creditor
side — it is seen as too optimistic,” Bastien said.
Interviews with
economists and senior banking officials in Greece underline just how
far the country has to go before Tsipras’ promise of an end to the
country’s suffering comes true.
One reason credit
has not begun flowing again is the staggeringly high levels of
non-performing loans (NPLs) still on bank balance sheets. Current
NPLs are equivalent to 50 percent of Greek bank portfolios, which
amounts to slightly more than €100 billion.
“We were supposed
to have legislation in force, allowing the banks to deal effectively
with the NPLs two years ago,” said a senior official at Piraeus
Bank. “This is something that is still not ready to be implemented.
The result is that NPLs keep going up.” According to Bastien, large
parts of Greece’s NPL stock was not being dealt with due to fears
that banks would attract legal complaints after foreclosing people’s
property.
Love or hate the IMF
While policymakers
dither in Athens, the Eurogroup finance ministers in Brussels must
also sort out their differences with the International Monetary Fund
on how best to go forward with the current bailout package.
Maturing government
debt and interest payments between January and July will cost the
Hellenic government more than €13 billion, according to an EU
source close to the talks. To secure the next bundle of cash, EU
creditors are demanding that Greece takes concrete steps to fulfill
its reform promises.
But the IMF has been
arguing that the EU’s current package is unsustainable because it
doesn’t contain significant debt relief and until this is
addressed, the Washington-based global financial firefighter won’t
sign on to the latest Greek rescue mission.
Countries such as
the Netherlands and Germany are loath to provide Greece with anything
other than short-term debt relief measures such as “smoothening”
the country’s “repayment profile.” The trouble is, a failure to
bring the IMF on board could result in huge delays to the bailout
program’s implementation because the German and Dutch parliaments
have insisted on its participation.
The IMF also
believes the EU creditors’ budget surplus target of 3.5 percent of
Greece’s economic output by 2018 is too ambitious. But in turn, it
wants Athens to make further cuts to pension handouts once the
program is over.
“The Greek
government, including Tsipras, should really think if it is in its
own best interests to continue to advocate that the IMF leaves the
program … If the IMF were to leave, you are losing your most
important advocate for debt relief,” Bastien said.
All the conflicting
demands have left the bailout talks in a stalemate. To break the
deadlock, Germany’s Finance Minister Wolfgang Schäuble recently
suggested that the European Stability Mechanism, the EU’s bailout
fund, take over the IMF’s duties as overseer of the program — a
scenario that the ESM’s Managing Director Klaus Regling has even
called “Plan B.”
But an IMF exit
would be a painful alternative, EU sources said, as the current
bailout package would have to be ripped up, rewritten, and approved
by the German parliament — a risky strategy especially as German
elections draw near. “Just a discussion about an IMF exit would
help the [Alternative for Germany],” the Berlin official said,
referring to the far-right, Euroskeptic party.
Last Friday,
Schäuble and IMF chief Christine Lagarde met on the margins of the
World Economic Forum in Davos and discussed the Greek conundrum. Both
reaffirmed their commitment to keep working together ahead of this
week’s Eurogroup meeting, sources in Berlin and Brussels said,
calming rumors of a breach — for now.
But should the
impasse on the Greek bailout continue and the IMF decides to pull
out, some fear talk of a possible “Grexit” could even start
creeping back into the debate.
If the IMF doesn’t
participate, “I think we’re going to go back to Schäuble’s
suggestion that we take a break from the euro,” said the banking
official at Piraeus Bank. “And that, I believe, would be very bad.”
Bjarke Smith-Meyer
contributed reporting from Brussels.
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