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The place where sanity goes to die
The laborious attempt made by Eurogroup chief Jeroen Dijsselbloem to answer the last question in Thursday’s press conference regarding Greece’s fiscal targets epitomised the sad state of affairs in the regular gathering of the eurozone finance ministers.
Dijsselbloem struggled to explain how the lenders had failed to even reach an agreement on what “medium term” means in terms of the period for which Greece would have to maintain a primary surplus of 3.5 percent of GDP.
Brushing off the Greek issue in his opening remarks and then appearing uncomfortable about providing any meaningful information during the Q&A, Dijsselbloem’s unease reflected the fact that eurozone lenders are running out of options and that the strategy of delivering sub-optimal solutions in Greece’s case appears to have run its course.
Conceding the minimum ground possible at every single critical juncture of the Greek crisis was a feasible strategy for as long as the International Monetary Fund was willing to look the other way and sign off on what was presented as progress in the Greek programme.
Now the IMF has returned to being an independent crisis manager that does not mince its words, certain eurozone member states realise that making the participation of the Fund a prerequisite for the Greek programme to continue is a double-edged sword. In the past it placed a huge burden on Greece but now it means compromises mostly on their part.
Entering the Eurogroup on Thursday, German Finance Minister Wolfgang Schaeuble said that it is up to Greece to complete the review. However, this narrative does not serve its purpose anymore since it is obvious that keeping the IMF on board is his biggest challenge.
Having tried to test the mood last week when he suggested that the ESM could assume the IMF’s role, Schaeuble had to back down quickly and make the IMF a basic requirement again. This is hugely problematic for him because the Fund is pressing the Europeans to take decisions that have been deliberately put off for a long time.
In mid-October, when this review began, Athens came to the table in a mostly compliant mood, ready to make the concessions necessary to conclude the process by the last Eurogroup of 2016 and instigate what Tsipras hoped would be a virtuous cycle that would lead Greece to gain market access in 2017.
Even on what was considered the most sensitive issue of further labour market deregulation, Tsipras (also due to the European Court of Justice ruling on collective dismissals) appeared willing to give in if some commitment was granted for the return of collective bargaining in the near future.
This time, the holdup is not because Greece has not delivered on what it has promised, as Schaeuble also claimed on Thursday.
Throughout the review process in November Greece and the creditors were drafting an agreement on policy conditionality that could be presented to the December 5 Eurogroup and clinch a deal that would include a comprehensive debt relief package that would include the medium-term measures that the European Commission, the IMF, and the European Central Bank, had supported.
With Germany agreeing to only politically benign short-term debt relief measures, the fiscal issue became a major obstacle. The matter was highlighted by the IMF in a couple of blogs by the director of its European Department Poul Thomsen in December. Thomsen’s message was that Greece needs lower targets for a long period of time and significant debt relief.
The IMF’s latest debt sustainability analysis (DSA) has been leaked to the Greek media. According to reports, the Fund believes that Greeces’ debt will only become sustainable when the grace period on its loans is extended to 2040, maturities lengthened to 2070 and the interest rate on EFSF and ESM loans is lowered below 1.5 percent for 30 years.
The IMF will only come on board if it considers the debt sustainable but, at this point, Schaeuble is not prepared to discuss anything that constitutes a programme change and, as a result, entails a very awkward discussion in the German Parliament.
This is what is holding up the conclusion of the review, rather than any significant procrastination on the Greek side.
Greece reportedly faced across-the-board pressure from the four institutions on Thursday to legislate contingency measures now for 2019 and beyond to ensure compliance with the fiscal target of 3.5 percent of GDP.
It is surprising that even the Commission would join in making more demands from Greece when only last month European Economic Affairs Commissioner Pierre Moscovici wrote an article in the Financial Times urging an end to the demands that will “condemn Greece to austerity forever.”
It will be no surprise to anyone when Greece will be told that the solution to this impasse is to agree to something that will be very close to what Germany is comfortable with.
This will only reinforce the impression that, as far as eurozone policy is concerned, Greece has become the place where sanity goes to die.