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2016-05-10 08:03:11
Brinkmanship over emergency loans resumes
May 7th 2016
THE tagline of the film My Big Fat Greek Wedding 2 , which was released in
March, is People change. Greeks don t. Whether any euro-zone finance
ministers have seen the film, let alone detected any resemblance to their
ongoing talks with the Greek government, is unknown. But the renewed bickering
over the terms of Greece s latest bail-out, complete with threats of a snap
election if its creditors don t give more ground, has the air of a duff sequel.
Greece badly needs the next dollop of the 86 billion ($99 billion) bail-out
creditors promised it last summer, in exchange for promises of austerity and
reform. But it will not get the money until the creditors complete a review of
its progress, which has been dragging on since October. The government has
scraped together enough cash (by raiding independent public agencies) to pay
salaries and pensions in May, perhaps even in June. But by July 20th, when a
bond worth over 2 billion matures, the country once again faces default and
perhaps a forced exit from the euro zone. The threat of Grexit is not exactly
back; it never really went away.
With a referendum on Britain s EU membership in June and a possible flare-up of
the refugee crisis as summer approaches, the last thing Europe needs is another
Greek drama. The European Commission is thus in a mood for compromise. It
emphasises that negotiations are 99% complete. But the other creditor, the
IMF, is less forgiving. With tax arrears in Greece rising and reforms
constantly delayed, the fund has little faith that the programme s target of a
3.5% primary budget surplus by 2018 can be achieved. It wants Greece to make a
contingency plan to raise more money or cut spending further before it approves
the next instalment of the bail-out.
In April a meeting of euro-zone finance ministers, intended to approve Greece s
fiscal plans along with the pending disbursement, was cancelled at the last
minute. Although negotiators had more or less agreed on a package of 5.4
billion (3% of Greek GDP) in austerity measures, they hit a deadlock over an
extra 3.6 billion in contingency measures to be adopted if the primary surplus
does not reach 3.5%. The Europeans seem content to have a woolly plan B, but
Christine Lagarde, head of the fund, says it will have to be legislated
upfront, have to be credible, and have to be triggered with a degree of
automaticity . Greece s finance minister, Euclid Tsakalotos, says this is
constitutionally impossible.
In fact the biggest constraints are political, not legal. The contingency
package would probably involve further cuts to pensions, a direct assault on
the base of the ruling Syriza party. Alexis Tsipras, the prime minister, faces
a revolt by 53 of his own MPs, led by Mr Tsakalotos. Greece s main opposition
party, New Democracy, now leads in the polls and has called for snap elections.
It says it will vote neither for the 5.4 billion austerity package (because it
is too tax-heavy and reform-light) nor for additional contingency measures.
The meeting of euro-zone finance ministers has been rescheduled for May 9th.
Before that, negotiators on both sides will need to agree on the contingency
plan. If they do so, the deal will have to be approved by the Greek parliament
by May 24th, when the next finance ministers meeting takes place. If Mr
Tsipras strikes a deal but cannot get it through parliament, a new election is
likely. And several euro-zone governments must get parliamentary approval to
sign off on any disbursement of bail-out funds. The potential pitfalls, in
other words, are legion.
The irony is that the IMF, for all its current intransigence, is the more
forgiving of Greece s creditors. It wants to reduce the primary-surplus target
to 1.5% and to write off some of Greece s debt. Such concessions are
politically indigestible for euro-zone governments, especially Germany s. The
most likely solution, as always, is a fudge: an agreement that gives creditors
just enough confidence to release the next slug of cash, without putting Greece
s finances on a sustainable footing or resolving the most heated disputes.
Deal or no deal, election or not, the economy is struggling. Banks are still
zombies; many structural reforms (such as to the judiciary, labour and product
markets) have been put off; and private investors continue to give Greece a
wide berth. Yet other euro members do not want to talk about debt relief.
Greeks are not the only ones, it seems, who do not change.