Greece Tries to Weasel Out of Spending Commitments Again

Prime Minister Alexis Tsipras announces higher spending without consulting his bailout monitors.

German chancellor Angela Merkel listens to Greek prime minister Alexis Tsipras ahead of a European Council meeting in Brussels, December 18, 2015
German chancellor Angela Merkel listens to Greek prime minister Alexis Tsipras ahead of a European Council meeting in Brussels, December 18, 2015 (European Council)

For the nth time, Greece is testing Europe’s patience by circumventing the spending commitments it made to qualify for financial support.

Surprised by a high budget surplus this year, the Greece prime minister, Alexis Tsipras, immediately vowed to use the money to fund free school meals for poor children, top up pensions for low-incomes retirees and freeze sales tax hikes on islands that are struggling to cope with refugees.

Tsipras, who leads the country’s far-left Syriza party, did not consult with his bailout monitors before making the spending pledges.

European finance ministers on Wednesday promptly put plans for short-term Greek debt relief on hold.

Sacrifices

Tsipras challenged the creditors on Saturday, telling a gathering of left-wing politicians in Berlin that the Greeks had made enough sacrifices.

“We have delivered on our obligations and our creditors need to do their part,” he said.

Despite calling a referendum and snap elections in 2015 in an attempt to strengthen his mandate and put pressure on Greece’s lenders, Tsipras has budged to demands for more austerity to qualify for a third, €86 billion bailout.

Among the measures are pension cuts, a streamlining of sales taxes, an overhaul of bankruptcy laws and the privatization of the Greek electricity grid.

More forgiving

Greece also agreed to post a 1.5-percent budget surplus this year and it did.

In fact, its surplus exceeded expectations and Tsipras’ spending plans, which would amount to around .4 percent of GDP, should not in themselves prevent Greece from meeting its bailout targets for 2017 and 2018 either.

That is why the European Commission is more forgiving than the eurozone’s finance ministers.

Although Tsipras’ unilateral decision raises “significant concerns on the process and substance” of the Greek bailout, a spokesperson argued it would only derail the program if the measures were extended into the future.

Pierre Moscovici, the EU’s economics commissioner, criticized the finance ministers’ decision to suspend debt relief, saying it is “essential” to the Greek economy.

IMF demands

The International Monetary Fund, which jointly administers the bailout with European institutions, agrees.

But it wants Greece to make more sweeping reforms in order to qualify for debt relief and lower budget targets.

Under the current plan, Greece is supposed to reach a surplus of 3.5 percent by 2018. That seems unrealistic.

But Tsipras’ Syriza party is ideologically opposed to the sort of liberalizations the IMF believes would justify lowering the target. It has instead raised taxes on businesses to spare workers and pensioners, suspended privatizations and scaled back labor market reforms.

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