Tales From the Region #3
Structural considerations for a prosperous Greece
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The risk of losing control before help arrives
Greek crisis redux? Not exactly
This week's explosion of Greek bond spreads and collapse of stocks prompted many people to have a sense of déjà vu. Many editors and analysts jumped in to call the new turmoil a repeat of 2010, when the geometric growth of Greek sovereign bond yields almost brought Europe to its knees.
Is it a Greek Crisis Redux? Not exactly. The Greek economy is not the loose cannon it was back in 2010. It remains in a bailout program; fiscal shackles are firmly established and, for the first time, its financing is largely guaranteed. It is not as systemically important - or as fragile - as in the 2010 crisis. The eurozone, on the other hand, finds itself in a tighter corner after a two-year market lull. Back then the narrative was about a sick little country threatening to tarnish a healthy Union. Today it’s about a flatlining union with a sputtering (German) engine, causing all peripherals to crack.
There is intense market pressure on the eurozone. Greece, being the weakest link in the weakest link of the stalling global economy, suffers more than its fair share of market beatings. It is a sad turn of events for the broken Greek population, which is seeking catharsis after five years of brutal economic and social contraction. It is hoping that the promise for sustainable restructuring will be fulfilled and respite from extreme austerity will be achieved. Instead the goalposts for the final deal are being constantly shifted. Confusion prevaials as to what it actually entails. They can only hope that EU countries will agree to a lasting solution that exhibits fairness and solidarity, and that their representatives will finally grasp some basic market mechanics while compromising over issues - instead of playing tough and posturing over nothing.
On Thursday, European institutions were in full-on damage control: The Eurosystem confirmed its willingness to push more liquidity to the Greek banks by reducing the haircut imposed on their guarantees. The Commission assured the markets of its support to Greece with a variation of the "whatever it takes" tranquilliser. It hinted to investors a safe and binding monitoring arrangement for Greece, before the current one expires. It also hinted at extensive conditionality.
Ironically, it seems that the hastiness of Greek politicians to "free Greece from the memorandums this year” is achieving the one thing that they sought to avoid. It is bringing forward the spelling out of the next program, which will be in the form of a precautionary line of credit with conditionality. The current market mayhem will act as a stick towards reforms. [I’m not sure if this irony was an accident or the good old ploy of Greek politicians to not budge until the “force majeure” presents itself, allowing them to blame the "inevitable."]
Given the eurozone’s need to rid itself of a recurring headache as it starts battling a much more serious malady, Brussels finally feels forced to step forward and honour its promise to the IMF by vouching for Greece. It would be great if the next Greek programme could showcase the coming-of-age of the Greek administration and the country’s politics, an effective euro solidarity and realistic growth incentives. But toxic Greek politics, a worsening global outlook, the lack of a euro area growth narrative and the abundance of discord mean it’s likely that it won't.
Time is running out for drafting the next deal if December is indeed the chosen timeframe. And that sinking feeling has been growing much stronger in the eurozone since the IMF weekend in Washington.
*Ilias Siakantaris is a financial reporter with Alpha TV and columnist for Kathimerini newspaper. Follow him at: @iliassiak