FOREIGN AFFAIRS by Peter WestmoreNews Weekly
Greece and EU edge towards debt crunch
, February 28, 2015
After days of discussion between the left-wing Syriza government in Greece and the European Union regarding Greece’s debt crisis, neither side wants to bring the issues to a head, while both sides remain committed to their original positions.
Greek PM Alexis Tripras
Syriza demanded an end of the EU austerity plan, while the EU insisted that Greece will have to commit to repaying its debts, in exchange for a multi-billion dollar bailout.
Syriza, an acronym of Greek letters for Coalition of the Radical Left, has risen from next to nothing to government over the past decade.
In 2007, it won just 5 per cent of the vote in national elections. Its share of the vote soared to around 38 per cent in the recent election, making Syriza the largest political party in Greece.
Its success is a reflection of the depth of Greece’s economic crisis, with unemployment over 25 per cent and youth unemployment over 50 per cent, and the previous government forced to cut wages and pensions and sell public assets, in exchange for EU loans of over US$200 billion to prop up the Greek economy.
Because Syriza was popularly elected, other countries in the European Union have treated the new government gently, indicating a willingness to negotiate with it. Most Greeks want to remain within the euro currency zone, so Syriza has been careful not to argue for Greece’s withdrawal from it.
It seems that neither side wants to be the one responsible for ending the dialogue.
But the two sides are deeply divided from each other. Elected on a platform of ending the EU’s austerity program, Syriza has announced a raft of measures which contradict the austerity program.
During his first meeting with Cabinet members, Syriza leader Alexis Tsipras told his ministers: “We are coming in to radically change the way that policies and administration are conducted in this country. Our priority is to support the economy — to help it get going again. We are ready to negotiate with our partners in order to reduce debt and find a fair and viable solution.”
In a series of announcements, the government signalled it would stop the sale of shares in the Public Power Corporation of Greece — the country’s biggest utility — and refiner Hellenic Petroleum, as well as the sale of airports, motorways and ports.
The government said it would rehire employees in the public sector who had been dismissed.
The government also announced pension rises for the elderly with low incomes, reinstatement of wage indexation, and a substantial increase in the minimum wage — all of which will be paid in euros.
These promises will be fulfilled only if Greece’s lenders, who include the European Central Bank and other European banks, backed by the governments of the European Union, agree to continue to lend money to Greece.
But the lenders have repeatedly said that they will lend money to Greece only if it continues the austerity program which led to the defeat of the previous New Democracy government.
Details of what has been discussed behind closed doors in emergency meetings between Greece’s Finance Minister, Yanis Varoufakis, and his European opposite numbers, have been revealing.
According to the Irish Times’ Arthur Beesley, Professor Varoufakis opened the meeting by outlining Greece’s humanitarian and budgetary problems. “That was as far as he got, however. To the immediate left of the Greek representatives sat [Irish] Minister for Finance Michael Noonan, who rejects any write-down and who had publicly bemoaned the lack of a concrete plan on his way into the meeting.
“On the other side of the table was the Slovak [finance] minister Peter Kazimír, who opened the wider discussion by saying divisions over the rescue of Greece had cost his party an election earlier in the debacle...
“Ministers from some of the Baltic countries joined in to say they had borrowed at high cost to source their contributions to the Greek rescue, adding Athens was paying a lower rate of interest on the bailout than they paid in private markets.
“Portugal’s [finance] minister, Maria Luís Albuquerque, said her country was paying more as a proportion of economic output to service its national debt than Greece.”
Spain’s finance minister, Luis de Guindos, said that with 25 per cent unemployment in his country, its €26 billion contribution to the Greek rescue was equivalent to its welfare budget.
The head of the European Central Bank (ECB), Mario Draghi, warned of the perilous position of the commercial banks in Greece which is conditional on the continuation of the current EU-IMF bailout program.
This, however, was anathema to the Greeks, who had spent the days since the election proclaiming the end of the bailout. Varoufakis wanted “bridging” finance, the aim being to help Greece overcome a looming funding crunch without strict policy oversight; but this was rejected.
The negotiations have delayed a final showdown. As things stand, unless agreement is reached by February 28, there will be no further loans to Greece whose government is bankrupt, followed by a run on Greece’s banks and the country’s financial collapse.