Greece debt restructuring required to recover from overwhelming crisis Analytic

19 February 2015. PenzaNews. The talks between the Greek government and the EU authorities over easing Greece’s debt burden in order to recover from recession have stalled during the Eurogroup meeting in Brussels held on Monday, February 16.

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Earlier, the new government at Athens after the victory of the Coalition of the Radical Left (Syriza), led by Alexis Tsipras, has rejected to extend the previous bailout program, which is due to run out on February 28.

Instead, the Greek government has developed a five-step plan with one vital component – a bridging loan agreement that would allow supporting the country during a six-month transition period.

However, the Troika of the European Commission, the European Central Bank (ECB) and the IMF are currently refusing to support this plan.

After the February 16 meeting, the Greek Minister of Finance Yanis Varoufakis said the head of the Eurogroup Jeroen Dijsselbloem insisted that Greece must request an extension of the current program only mere minutes before the talks, practically delivering an ultimatum to the country with funds enough only for less than two weeks.

Numerous analytics and economists worldwide think the current situation requires achieving the compromise between Athens and the Troika as soon as possible.

One of them, George Tzogopoulos, research fellow at the Hellenic Foundation for European and Foreign Policy (ELIAMEP), stressed that finding a solution to the problem is important not only for Greece, but for all eurozone states as well.

“The most important challenge is now to avoid an accident. When this will be avoided and it becomes sure that an agreement is reached, confidence will return. It should first agree with the creditors. Additionally, structural reforms are required and this is where Syriza and the creditors of Greece agree: for example, in the fight against tax evasion. The problem is that the new Greek government does not have much time and that it might face internal disagreements,” the expert explained.

In his opinion, the current clash of opinions is a serious test for the whole Europe.

“Greek citizens voted for Syriza hoping to see a change in the policy of the Greek government regarding austerity […] Syriza is not prepared to follow a path similar with previous Greek governments, although it has to respect agreements,” said the ELIAMEP researcher, adding that neither side wants Greece to leave the eurozone in case the situation escalates.

On the country’s external policy, the expert stressed that Athens will maintain largely the same course on international arena, but may choose to expand bilateral relations with Beijing and Moscow.

At the same time he pointed out that the future of many European opposition parties depends on the results of the talks on Greece that are expected to continue, and future forecasts made by the EU oppositions.

“We have to wait and see whether Syriza will have success first. If yes, then of course other opposition parties in European countries will gain ground. If no, they will lose ground,” George Tzogopoulos explained.

Meanwhile, Simon Lightfoot, researcher of European Politics at the University of Leeds, called the victory of Syriza invaluable experience for all EU anti-austerity parties, but added that the new Greek PM, Alexis Tsipras, and his supporters have found themselves in a difficult state of affairs.

“They were elected on a very clear mandate – against austerity, – so they are slightly caught in a trap. It is difficult to see how much room for maneuver the Greek government has and how much room for maneuver the EU institutions have, […] and then, it is interesting to see how much room for maneuver Angela Merkel has, because she has her own German electorate interested in what is going on,” the expert clarified.

However, he still expressed hope the sides will be able to reach a consensus.

“There is probably some kind of compromise that can be struck. One of the things that the European Union is very good at is dealing in compromise,” said Simon Lightfoot.

At the same time, Stefan Liebich, Bundestag member and representative of the Left Party of Germany, recalled that new tendencies in the EU politics became noticeable long before the 2015 Greek elections.

“Many Europeans have had enough of the austerity politics of Angela Merkel. They want a change and they are going to vote differently in future as well,” the politician stressed.

From his point of view, the events in the less well-to-do EU countries express the will of the European people to move to socially oriented financial policies.

“We need a debt cut to get Greece back on its feet. That is what Alexis Tsipras wants, and I think that the European Union should help him with that. Greece has suffered enough under the European austerity politics. It is time to help the people and not the banks,” the Bundestag member explained, noting that Athens are more likely to remain in the Union.

At the same time, the speaker found it difficult to estimate how long it will take for Greece to recover from the lengthy and severe crisis.

“It depends on too many factors. Is the European Union willing to agree to a debt cut? How quickly they can get rich Greeks to pay their taxes? [But] I do not think that the Greek government needs any more advice on how to run their country. I trust that Alexis Tsipras knows what he is doing,” Stefan Liebich said, stressing that the Greek government has many supporters within Europe.

In his turn, Dana Allin, senior fellow for US Foreign Policy and Transatlantic Affairs at the International Institute for Strategic Studies (IISS), called the demands of Syriza “the least bad reaction” to the Draconian austerity measures.

“One could imagine a radical right-wing reaction. Instead, you have a fairly left-wing populist party that, nonetheless, is making arguments that, in economic terms, are not unreasonable,” he explained in an interview to PenzaNews agency.

“Europe’s leaders cannot expect populations in Southern Europe to sheepishly go along with policies of austerity – particularly when respected economists do not actually believe they make sense. It is not just an irrational reaction: it is obviously a reaction to too much suffering, but it’s backed up by economists who say that Greece actually cannot pay back its full debt service,” added the speaker.

He also reminded that requests of the Greek government are not concerned with procuring more funds, but rather with reducing the level of current debt service.

“And I think that is actually a reasonable condition for the Greek government to take, for a country that is facing a real depression with huge unemployment,” stressed the IISS researcher.

In his opinion, if the talks fail completely, the “Grexit” may end up being a damaging blow to Europe and cause additional pressure on financial markets.

However, Dana Allin ruled out the possibility of EU collapsing if talks with the Troika end in a failure.

“I think – in fact, I know that there is enough overall commitment to the European Union project that it is not going to fall apart,” he said.

Meanwhile, Grégory Claeys, macroeconomist, Bruegel research fellow, noted that “Grexit” would sabotage the statement of the ECB President Mario Draghi about the irreversible nature of the European Economic and Monetary Union.

“If Greece leaves the eurozone, basically it would mean that the eurozone is reversible monetary union, and it could mean that another country – maybe not now, but in the future – could leave the euro,” the economist explained.

In his opinion, “kickstarting” the economy growth in Greece requires establishing dialogue and amending the debt agreements.

“Economic policies – austerity policies – did not work out so well. The GDP of Greece fell by a quarter since the beginning of the crisis, the debt has gone up instead of going down as it was predicted, so, basically, the policies that had been implemented were a failure,” Grégory Claeys stated.

He also pointed out that Athens have many urgent internal issues to deal with.

“I hope that growth will start again in the next few years, but the Greek problem will remain there for a long time,” said the Bruegel research fellow.

Along the same line, Heiner Flassbeck, economy analyst and director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development (UNCTAD), suggested that talks between Athens and Brussels would largely define the future of several European countries.

“What is mostly misunderstood is a simple fact that many countries are in a Greek position, so to say: it is not just Greece. People in Germany, in particular, tend to look at Greece as a case sui generis that has nothing to do with other countries, but that is not true. What we have is a huge gap in competitiveness between Germany on the one hand, and Italy, France, Greece, Portugal and Spain on the other hand. This is what it is all about, and the question is what is going to happen to Italy and France later. That is much more important than the question about Greece,” he explained.

The analyst also pointed out great difference of opinions between Greece and the EU creditors.

“The creditor countries, Germany in particular, insist that the old conditions that had been put upon Greece by the Troika should persist, should go on, should be intensified, so that at the end, Greece would come out like a phoenix from the ashes, recover. But it has not recovered yet: up to now, it’s a disaster,” Heiner Flassbeck said.

As a side note, he mentioned a book called “Against the Troika” he wrote together with Costas Lapavitsas, economist and Syriza member, where the authors reached the conclusion that the current crisis was primarily caused by Berlin’s mercantilist policy.

“This is the main reason of the problem, and Germany is not willing to talk about it, not willing to acknowledge that, is denying that fact. But it’s a fact of life, and the rest of the world more or less knows it,” the analyst stressed.

In conclusion, Heiner Flassbeck said he believes that Troika’s attempts to promote further debts and increasingly tough austerity measures will only lead to complete meltdown of the Greek economy.

“It is a catastrophic situation at this moment already, and so it cannot go on,” the economist summed up.