3
‘Grexit’ battlelines emerge
As
Europe’s crucial election season nears, EU creditors are racing to
prevent a renewed Greek debt crisis.
By BJARKE
SMITH-MEYER 2/10/17, 3:39 PM CET Updated 2/10/17, 9:15 PM CET
Here’s exactly
what the eurozone’s finance ministers wanted to avoid: another
Greek drama.
And yet 10 days
ahead of the next Eurogroup meeting, officials are scrambling to
agree with Athens on the latest round of reform commitments as part
of Greece’s €86 billion bailout program.
The February 20
meeting of the eurozone finance ministers is the last time the 19
countries meet before crucial elections kick off across the bloc. As
anti-euro populism spreads in the Netherlands, France, and Germany,
the last thing politicians fighting for votes in these countries want
is a rerun of a tiresome Greek play generating headlines. This
month’s gathering, said a senior EU official, is “not formally
but realistically the time one needs to reach political agreement.”
Greek and EU
officials are still in the process of negotiating the terms and
conditions which Athens must respect to secure the next bundle of
bailout cash.
The ultimate goal of
the bailout package is to bring Greece back to the capital markets by
mid-2018, so that the country can sell its public debt to investors.
So far, Greece has
managed to agree on reform promises, which include strengthening its
banking governance and changes to its pension system.
But the current
round of talks has been slow, as disagreements persist over Greece’s
desire to reintroduce collective bargaining into its labor markets
and the privatization of its energy sector, among other things. While
there are technically no deadlines to meet, the talks are constrained
by Greece’s dwindling coffers.
The biggest elephant
in the room is the International Monetary Fund.
The Fund has
repeatedly threatened to walk away from the current bailout package,
unless Greece gets more debt relief. Otherwise, Greece won’t be
able to grow out of its mountain of debt, the IMF believes. The
country’s EU creditors disagree, and are standing firm.
The IMF’s
participation is particularly important for the likes of Germany and
the Netherlands. Without it, the countries’ parliaments may not
agree to further disbursements of bailout cash.
How will the latest
sequel to the Greek crisis end? The script isn’t complete, but here
are the already-aired conflicts that have emerged and must be
resolved to get a happy ending:
1. IMF vs the ESM
This week witnessed
an unusual public row between the IMF and the head of the EU’s
bailout-arm, known as the European Stability Mechanism (ESM).
Klaus Regling called
the IMF’s damning audit of Greece’s debt burden — “highly
unsustainable,” in the Fund’s words — “not appropriate” in
an op-ed in the Financial Times.
He contended that
the IMF got its analysis wrong, as it doesn’t take the ESM’s very
long-term loans and low interest rates into consideration. The IMF
also “ignores the pledge made by Greece’s eurozone partners”
for additional debt relief, “should there be a need for it,” the
ESM chief wrote.
But the Fund has
stuck to its guns, with its head Christine Lagarde characterizing her
organization as playing the role of the “ruthless truth-teller”
with its report on the state of the Greek economy.
A particular
sticking point for the IMF is the EU creditors’ budget surplus
target of 3.5 percent of Greece’s economic output by 2018, which
the Fund says is too ambitious. In turn, however, the IMF wants
Athens to make further cuts to pension handouts once the program is
over. Alas, this is something the Greeks are dead set against.
2. Greeks vs the IMF
As if the fight
between the IMF and the ESM wasn’t enough, the embattled Greeks
have also come out swinging.
On Thursday, the new
Greek alternate foreign minister for EU affairs, George Katrougalos,
launched a stinging attack against the IMF over its “irresponsible
demands,” including “insistence to open issues that were closed …
like the pension review.” He went on to argue that Greece would
have “already reached an agreement with our EU partners in
December, had it not been for the IMF.”
For now, the
eurozone countries are putting up a united front against the IMF’s
position and are seeking a compromise deal to move the talks forward.
To achieve that,
Greece’s Finance Minister Euclid Tsakalotos is expected to meet
with EU creditors and Eurogroup President Jeroen Dijsselbloem on
Friday to talk about measures that would serve as a back-up, in case
Greece is unable to maintain its budget surplus target of 3.5 percent
after 2018.
3. Europe vs
‘Grexit’?
An agreement between
the parties would open the door for EU officials to travel to Athens
next week to conclude the latest round of bailout talks.
If that happens,
there’s a chance that the details can be agreed by February 20 and
sanctioned by the Dutch parliament, ahead of the country’s March
elections. The IMF may then also finally decide to participate.
But if no deal is
reached before the Eurogroup meeting, then talks will drag on even as
Greece will begin facing debt payments, an EU source said. In April,
Athens must pay back €1.4 billion to the European Central Bank.
Katrougalos refused
to confirm that his country was running out of cash, insisting that
“we can survive without an agreement [in February].”
That might be the
case for the spring. But an official close to the talks has said
maturing government debt and interest payments by July will cost the
Hellenic government more than €13 billion.
EU officials
involved in the negotiations insisted that talks are going well. But
no one is ready to say it’s a done deal.
In any case, how the
current Greek debt episode will end will become clearer next week.
Until then, the only thing certain is that time is running out.
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