Τετάρτη, 11 Φεβρουαρίου 2015

Greece's debt-reduction offensive

LAST week was the week of the new Greek government's "charm offensive", a whirlwind diplomatic tour of Europe to win allies for its efforts to gain a cut in the country's debt burden and undo the onerous terms of its bail-out programme. In the end, the tour involved more offense than charm. Alexis Tsipras (pictured), the firebrand prime minister, found little sympathy on his visit to Brussels, while Yanis Varoufakis, his unorthodox finance minister, was rebuffed politely in a long string of European capitals (and rather impolitely in Berlin). Among European Union officials, the hope took hold that this show of unity would persuade Mr Tsipras to back off and accept an extension of the bail-out programme, if only temporarily, to avoid the increasingly worrisome possibility that Greece could soon run out of money to pay its debts. The moment for such a climb-down would have been Mr Tsipras's first policy speech to the Greek parliament on Sunday. 
Mr Tsipras was having none of it. He sounded just as hardline speaking to parliament as he did on the campaign trail last month. He insisted that Greece would pursue concessions that the country's eurozone partners had already rejected last week in talks with Mr Varoufakis: a debt restructuring in the shape of two exotic new bonds, and a bridge programme to keep the country afloat until June. That is when he plans to present to the eurozone Greece's own reform programme, a "new deal" that he promises will not contain any input from international lenders.
Mr Tsipras also stuck to his guns on three critical issues that together have the potential to derail the 2015 budget: a generous social welfare package; the abolition of an unpopular property tax; and a halt to privatisation. If implemented as promised, these measures would knock at least €6 billion off projected revenues this year, wiping out any prospect of Greece achieving a budget surplus. He promised to restore the minimum wage from the current €580 a month to the pre-crisis level of €750 a month by 2016, and to reverse labour-market reforms. The only parts of the speech that might have pleased Greece's creditors were an outline of new administrative measures to speed a crackdown on tax evasion by the wealthy, and pledges to end the tight grip of interest groups known as the "oligarchs" (ancient Greek for robber barons) on public procurement contracts and the electronic media.  

Lawmakers from other parties said they were not surprised by  Mr Tsipras's tough stance. His approval ratings rose above 70% last week (up from between 65% and 68% the previous week, his first in office). "First comes the grandstanding, then, after the European summit, the real negotiations [with the EU and International Monetary Fund] will begin," said one former cabinet minister. Impoverished Greeks hope the new government led by Mr Tsipras's Syriza party will fulfil its promise to "end austerity" by providing them with free electricity, food stamps, and a bonus for pensioners struggling to get by on less than €700 per month.
In Brussels, Mr Tsipras's determination triggered disappointment and anxiety. Time is running short to find a solution to avoid a Greek default. Athens says it needs up to €5 billion to meet its budget and debt repayment bills through June. Because of a slowdown in tax receipts (as taxpayers wait for the new government to unveil policy changes), it could run into trouble as soon as March, when it is due to make a €1.5 billion payment to the IMF. Most European officials assume that some sort of a compromise will be struck in time.
But it is increasingly difficult to imagine what the shape of such a compromise might be. The European Central Bank has ruled out lifting the ceiling it has imposed on Greek debt issuance, which would be required by Mr Tsipras's original plan to issue €10 billion in new treasury bills; it sees this as tantamount to monetary financing. The ECB has also waved off talk of returning to Greece €1.9 billion in interest it earned on an earlier stage of the rescue, saying this is impossible if Greece insists on exiting its programme. As for talk of a bridge loan, Jeroen Dijsselbloem, the chairman of the EU's Eurogroup of finance ministers, stated categorically on Friday that "we don't do" those.
EU officials are worried that Athens is misreading the signals. On Monday Jean-Claude Juncker, president of the European Commission, warned Greece not to "assume that the overall mood has so changed" that Europe will "accept Tsipras's programme unconditionally". Indeed, Mr Tsipras's first weeks in power have been remarkable for the degree of solidarity they have prompted among other eurozone countries, and between the sometimes fractious institutions composing the "troika" that negotiated the bail-out programme (the European Commission, the ECB and the IMF). While some are sympathetic to dialing back austerity, all insist that Greece must fulfill the terms earlier governments agreed to, and should not exit the bail-out programme unilaterally.
Optimists hope a compromise for the short-term funding crunch may be struck on Wednesday, when the Eurogroup holds its next meeting. The European Council, which brings together the EU's heads of state, is to meet the following day. Neither Athens nor any of its creditors want to see Greece forced out of the eurozone. Europe has undergone five years of institutional reform, and extended hundreds of billions of euros in loans, to prevent that from happening. Over the course of the euro crisis, no one has yet made money betting against the EU's ability to muddle through. But it is becoming difficult to figure out how it will do so this time.

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