Greece
defies creditors over more cuts as economy shrinks unexpectedly
Athens’
refusal to further austerity intensifies standoff over €86bn aid
package that requires government to implement economic reforms
Helena Smith in
Athens
Tuesday 14 February
2017 19.57 GMT
The standoff between
Greece and its creditors has escalated, with the embattled Athens
government vowing it will not give in to demands for further cuts as
data showed the country’s economy unexpectedly contracting.
As thousands of
protesting farmers rallied in Athens over spiralling costs and
unpopular reforms, the Hellenic statistical authority revealed that
Greek GDP shrank by 0.4% in the last three months of 2016.
After growth of 0.9%
in the previous three-month period the fall was steep and unforeseen.
On Monday the European commission announced that the eurozone’s
weakest member was on course to achieving a surplus on its budget of
2.3% after exceeding its 2016 fiscal targets “significantly”.
The setback came as
prime minister Alexis Tsipras’ lefist-led coalition said it would
not consent to additional austerity beyond the cuts the country had
already agreed to administer under its third, EU-led bailout
programme.
Speaking on state
TV, the digital policy minister Nikos Pappas, Tsipras’ closest
confidant, insisted that ongoing differences between the EU and
International Monetary Fund over how to put the debt-stricken state
back on the road to recovery were squarely to blame for the failure
to conclude a compliance review at the heart of the standoff. The IMF
has argued vigorously that extra measures worth 2% of GDP will have
to be enforced with immediate effect if Greece is to achieve a high
post-programme primary surplus of more than 1.5%.
“The negotiations
should have ended. Greece has done everything that it was asked to
do,” he said and added there would be “no more measures”.
The future of the
€86bn financial aid programme is contingent on Athens implementing
agreed economic reforms. The IMF has repeatedly said it will not sign
up to the programme unless the crisis-plagued country is given more
generous debt relief in the form of a substantial write-down.
With Greece facing a
€7bn debt repayment to the European Central Bank in July, fears of
a Greek default have once again hit markets with shares falling and
interest rates on Greek debt rising.
But Tsipras is also
under pressure from back-benchers in his fragile two-party
administration. After seven years of adopting grueling austerity in
return for emergency bailout aid many are openly questioning the
wisdom of applying yet more measures that have already put Greece in
a permanent debt deflationary cycle.
All eyes are now on
a flying visit Europe’s economics chief Pierre Moscovici will make
to Athens on Wednesday. Government sources said they were hoping the
EU commissioner would come with an “honourable compromise”
acceptable to all so that stalled negotiations could resume with the
return of auditors as soon as possible.
But the eurozone
chief, Dutch finance minister Jeroen Dijsselbloem, warned it was
unlikely a solution would be found before the next meeting of finance
ministers representing countries in the currency bloc on 20 February
– raising the spectre that Greece could be headed for a rerun of
2015 when it teetered towards euro exit.
On Monday, Christine
Lagarde, the IMF’s managing director, raised the stakes further
saying Greece could not be singled out for special treatment. “We
have been asked to help, but can only help at terms and conditions
that are even-handed,” she told Reuters. “In other words we
cannot cut a special sweet deal for a particular country because it
is that county.”
Despite the delay,
Greek officials have repeatedly voiced optimism that the review will
soon be concluded. Amidst the uncertainty the real economy has been
put on hold with non-performing bank loans and private debt
ballooning. This week the head of the Greek public power corporation,
DEH, said lack of liquidity was such that the body was on the verge
of bankruptcy.
Schäuble
strikes again
Athens has largely kept its
part of the third bailout bargain. Germany should heed the IMF and
commit to debt relief for austerity-fatigued Greeks.
By PAUL
TAYLOR 2/14/17, 9:40 PM CET Updated 2/15/17, 7:47 AM CET
PARIS — Is
Wolfgang Schäuble about to exact his revenge?
Less than two years
after he narrowly failed to force Greece out of the eurozone, the
German finance minister has once again taken a hard stance,
dismissing calls for debt relief and insisting on yet more austerity.
Schäuble‘s
intransigence adds a stiff dose of curmudgeonry into the latest
episode of a long-running three-way struggle between Athens, its
European Union creditors and the International Monetary Fund.
His demand — that
Greece meet a budget surplus target before debt service payments of
3.5 percent of GDP in 2018 and for a decade thereafter — has been
dismissed by the IMF as unrealistic. It comes just as Greeks are
finally starting to emerge from an eight-year depression that wiped
25 percent off their economic output and left nearly a quarter of the
workforce out of a job.
This tough stance
has increased doubts about the IMF’s willingness to support
Greece’s third financial bailout, agreed with the eurozone in July
2015, and clouded chances of keeping the program on track before
Dutch and German elections this year. That’s one reason why
eurozone bond markets are suffering their worst bout of jitters since
2015.
EU and Greek
officials hope to clinch an agreement to conclude the review in time
for eurozone finance ministers to give the green light to a new slice
of aid at their next meeting on February 20.
After Britain’s
vote to leave the EU, the Trump administration’s apparent eagerness
to break up the bloc and the rise of populism, the last thing the
Continent needs is another eurozone crisis. Indeed, potential
investors are already taking fright at the risk of another Greek debt
drama.
If Schäuble wants
the IMF on board in Greece to guarantee tough enforcement of reforms,
as he has promised the German parliament, he should heed the global
lender’s advice and commit now to easing Athens’ debt burden in
the future.
This need not
require a “haircut” — reducing the amount Greece owes its
European creditors. The goal could be achieved by stretching out
repayments over decades, extending an interest payment moratorium and
reducing interest rates. After all, Britain only finished paying off
its World War I loans in 2015, a century after borrowing the money.
Schäuble, 74, who
revels in playing the grumpy Uncle Scrooge of the eurozone, has long
contended that Athens is incapable of reforming its economy and
public finances and should be ejected from the currency area. He
tried to put that into practice in 2015 after Greek voters rejected
the terms of a previous bailout in a referendum, proposing Athens
take a “temporary break” from eurozone membership — a move that
would almost certainly lead to Grexit.
The veteran
conservative was overruled by German Chancellor Angela Merkel, who
agreed to a €86-billion eurozone rescue package after leftist Greek
Prime Minister Alexis Tsipras accepted tough terms he had previously
resisted. Merkel understood it was safer to hold the eurozone
together than to open up the possibility that membership in the
monetary union is reversible.
Now Schäuble is
calling that into doubt again, even though Greece actually exceeded
its fiscal targets last year due to improved revenue and a strong
tourist season. Athens has to pay €7 billion to the European
Central Bank in July, for which it needs the next instalment of
eurozone rescue loans. They can only be unlocked if the creditor
institutions, including the IMF, sign off on a review of Athens’
compliance with the bailout program.
EU and Greek
officials hope to clinch an agreement to conclude the review in time
for eurozone finance ministers to give the green light to a new slice
of aid at their next meeting on February 20. But with Schäuble and
the IMF at loggerheads, a decision could drag out until April or May.
The reason the
crisis is bubbling up again comes down to domestic politics. Schäuble
had tried to kick the Greek debt issue into the long grass, putting
off a decision until after September’s German election. In doing
so, he bet that the IMF would go along with deferring discussion of
substantial relief until toward the end of the bailout program in
2018.
But IMF staff, stung
by critical internal and external reports, saw their credibility at
stake and refused to massage the numbers and declare Greece’s debt
(now 179 percent of GDP) sustainable when they consider it to be on
an “explosive path.”
Tsipras has done
Greece no favors by demonizing Schäuble and picking fights with the
IMF to appease his leftist base, especially since the fund is Athens’
ally in its quest for debt relief.
Schäuble does not
want to be accused of going soft on Athens in the run-up to an
election in which the hard-right Alternative for Germany and the
liberal Free Democrats are both campaigning to kick Greece out of the
eurozone. Aiding the Greeks is deeply unpopular among conservative
German voters and media, who blame Athens’ woes on fiscal
profligacy and fecklessness rather than excessive austerity. They
revere Schäuble as a guarantor of fiscal rectitude at home and a
stickler for the rules in Europe.
But Schäuble would
be wise to remember the main threat to his and Merkel’s
center-right Christian Democrats comes not from farther right but
from the resurgent Social Democrats, whose new leader, former
European Parliament President Martin Schulz, is arguing in favor of
giving Greece more breathing space. Schulz rightly says flirting
again with pushing Greece out of the eurozone plays into the hands of
anti-EU populists in Europe and the United States and would certainly
not be in Europe’s or Germany’s interest.
While former U.S.
President Barack Obama publicly advocated debt relief for Greece,
Donald Trump has not yet taken a position or nominated a new U.S.
representative to the IMF. But his self-proclaimed putative envoy to
the EU, Ted Malloch, has poured oil on the fire by saying Greece
should have left the monetary union four years ago and might well
have to sever ties with the euro if Germany and the IMF remain on a
collision course.
To be sure, it is
possible Schäuble’s tough talk is just a tactic to drive a hard
bargain on those economic reforms. German officials accuse the Greek
authorities of dragging their feet on the privatization of state
enterprises and measures to make it easier for employers to lay off
workers.
Tsipras has done
Greece no favors by demonizing Schäuble and picking fights with the
IMF to appease his leftist base, especially since the fund is Athens’
ally in its quest for debt relief. But Merkel should not let her
finance minister take a wrecking ball to Greece’s bailout. After
doing all she has done to save the eurozone, her own legacy is at
stake.
Paul Taylor, a
contributing editor, writes POLITICO‘s Europe At Large column.
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