Time is — once again — running out for Greece. This time the sticking point is a €7 billion tranche from its bailout program. Greece needs the money by July, but European officials had hoped to reach an agreement with the International Monetary Fund about the payment early next week, lest Greece’s debt crisis become an issue in the Dutch and French elections.
The mood in Brussels isn’t hopeful, the Financial Times reports. The expectation is that the creditors will miss their self-imposed deadline.
That would be especially unfortunate for the Dutch prime minister, Mark Rutte, who faces reelection in four weeks. He famously promised voters in 2012 that he would not support any more bailouts for Greece — but then he did. This is the worst possible time for him to be reminded of that broken promise.
There is no immediate risk of bankruptcy, let alone ejection from the eurozone, for Greece. But the closer we get to July, the more markets will worry and the more pressure will rise on lenders to hash out a compromise.
So what’s the problem?
Dispute among the creditors
The main dispute is not between Greece and its creditors. The Economist explains that it’s among the creditors themselves.
The IMF insists that Greece needs debt relief. Without it, the fund worries that Greek debt will balloon after 2030, when cheap eurozone loans expire and the country is supposed to start borrowing on financial markets again. Private investors would probably demand higher interest rates on those loans, so Greece’s debt would become more expensive.
The IMF hasn’t joined the current bailout program, which is Greece’s third since 2010. If debt relief doesn’t become part of the package, it maintains it will stay on the sidelines.
Northern European leaders do not agree the Greeks need, or deserve, debt relief. They justified financial support to skeptical voters by saying the Greeks would pay the money back. If they go back on their word, it could add fuel to the flames of Euroskeptic nationalism.
But leaders from those same countries — Finland, Germany, the Netherlands — are also keen to get the IMF involved. They don’t trust the European Commission to monitor the bailout. It has time and again waved debt and deficit rules for other countries.
Then there is a dispute between the creditors and Greece. The former insist on stricter, pre-legislated reforms to taxes and pensions worth up to 2.5 of GDP.
European officials and the IMF have time and again advised the Greeks to shift the tax burden from businesses to individuals, streamline the tax code and rationalize the pension system.
Such demands look unreasonable to the Greeks.
Around 15 percent of the population lives in extreme poverty. One in two Greek households rely on pensions to pay their monthly expenses, with 25 percent of the population receiving a pension. It is not uncommon for one retiree’s pension, which can be as low as €300 per month, to support an entire family.
Last year, pensions were cut by up to 40 percent. Taxes have gone up on alcohol, cars, cigarettes, fuel and television sets.
As the Financial Times put it in January, “It is a drastic return to reality for many in a country where, for decades, tax enforcement has been lax and social benefits generous.”
Greece’s ruling Syriza party opposes reforms that would cut pensions or raise taxes. It also argues for debt relief. Macropolis reports that it might rather call an early election than give in to the creditors’ demands.
It has made the same threat before only to give in at the last minute. But this time could be different.
Syriza came to power in 2015 on promises to cancel austerity. It won 36 percent of the votes in the election that year, enough for 149 out of 300 seats in parliament.
It quickly came to terms with reality. After months of negotiations and a bailout referendum — the outcome of which Syriza ignored — it recognized that it had no choice but to accept the creditors’ terms for continued financial support.
That capitulation has not been forgotten. Polls put Syriza’s support around 18 percent against 30 percent for the conservative New Democracy party.
The leftists’ fear is that if they surrender to the creditors a second time, they will lose all credibility.
How is the Greek economy doing?
Not great. Reuters reports that the Greek economy contracted in the fourth quarter of last year, effectively wiping out the gains that had been made earlier in 2016.
The economy is still a third smaller than in 2008, when the crisis began. The government owes around €320 billion, almost double the size of GDP.
Unemployment has been coming down, but nearly one in four Greeks are still without a job.
Consumer inflation is reaching a five-year high of 1.5 percent, which, according to Reuters, may be healthy in that half a decade of deflation has ended. But rising prices are no comfort to those who can barely make ends meet. A fifth of Greeks now get by without basics such as heating or a telephone line.