With Greece poised to miss a deadline this month that would conclude a review of its latest bailout, the government of Alexis Tsipras risks reprising the antagonistic relationship with his country’s creditors that nearly knocked the nation out of the common currency in 2015.
Over the weekend, Prime Minister Tsipras lashed out again at the International Monetary Fund, one the institutions monitoring Greece’s rescue, as the auditors insisted on legislation that would trigger further budget cuts if fiscal targets are missed. That gives Athens about a week to reconcile those differences.
Even though the European institutions have disagreed with IMF projections and said Greece didn’t need the extra measures to meet requirements set out in its 86 billion-euro ($92 billion) bailout, they have fallen into line to keep the fund involved, according to a person with knowledge of the talks. Blaming the IMF for the deadlock is a strategy that may not work anymore as Tsipras faces a more aligned group.
“There is a risk that the Greek government misreads key creditors such as Germany and the IMF and is too uncompromising on the reforms being demanded,” Janis Emmanouilidis, director of studies at the European Policy Centre in Brussels, said in an interview. “In the worst case, this would make it unnecessary for the euro area and IMF to bridge their differences and could revive the danger of Grexit.”
February Deadline
Germany and the Netherlands had threatened to end the Greek program if a deal wasn’t reached that included the IMF. German Finance Minister Wolfgang Schaeuble’s vocal insistence on the fund’s participation gave the IMF leverage when lobbying for its demands, said a separate European official involved in the discussions. Both officials asked not to be identified because the meetings were private.
European Union officials set a Feb. 20 deadline for Greece to complete the review, before the start of a busy national election season that will make additional negotiations with Tsipras’s government politically difficult. Failure to reach a deal means Greece may not be able to repay about 6 billion euros of bonds it has coming due in July.
For an explanation of the dangers Greece faces, click here
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In an extraordinary meeting in Brussels on Friday, bailout auditors -- the European Commission, the European Central Bank, the European Stability Mechanism and the IMF -- asked Tsipras’s government to legislate additional fiscal cuts equal to about 2 percent of gross domestic product if the country fails to meet certain budget targets, according to another person with knowledge of the talks. These contingent measures are the basis for further discussions, the person said.
Tsipras said in a Saturday speech to members of his Syriza party’s central commission that the IMF doesn’t have the courage of its convictions, is afraid to tell Europeans the truth and is playing a perpetual poker game. Tsipras said that bailout talks would close positively, but that he wasn’t sure if the fund would have a central role.
Surplus Clash
Greece needs political stability and more regulatory overhauls to set right an economy that contracted in seven of the eight years through 2015 and to get out of emergency care in 2018. The country has had one referendum, five national elections, six prime ministers and nine finance ministers since late 2009.
The yield on Greece’s 4.75 percent notes due April 2019 fell 128 basis points on Friday to 8.76 percent after reaching a five-month high on Thursday. The benchmark Athens Stock Exchange rose 2.5 percent.
The latest proposal given to Greece on Friday signals that even though the creditors’ fiscal projections for the country may still diverge, their path forward has aligned.
This leaves Tsipras in a difficult position: he will either have to agree on painful measures, including a lower income tax-free threshold and pension cuts, even as his popularity has plunged; or call snap elections, campaigning against creditors’ demands and refueling a popular backlash against the terms attached to the lifeline keeping Greece in the euro.
Even if Tsipras bites the bullet to legislate the measures sought by the creditors, he may have an even more bitter pill to swallow in the next few months: negotiating another strings-attached loan.
“I see no way Greece returning to markets at sustainable rates in 2018,” Zsolt Darvas, a senior fellow at the Bruegel think tank in Brussels, said. “I find a fourth program inevitable, unless euro-partners forgive half of their loans to Greece, which is politically unrealistic.”
