New season, same story in eurozone


TAGS: Analysis, EU, Economy

The new season of our beloved soap opera began last week. Eurozone: The Rise and Fall has kept us glued to our screens for the past six years and the next episodes in the series promise not to disappoint.

“The summer is over, pack up the camping gear," said Eurogroup chief Jeroen Dijsselbloem on Friday at the first gathering of eurozone finance ministers since their vacations. The Dutch finance minister’s message in Bratislava was aimed at the Greek government, which is behind in the completion of the 15 milestones that are needed to secure the next bailout subtranche of 2.8 billion euros.

“There was a general feeling that we must not lose time… so more progress is needed and we strongly encourage the Greek government as a whole to speed up the implementation of the remaining milestones,” added Dijsselbloem in his, less sarcastic, official statement after the meeting.

German Finance Minister Wolfgang Schaeuble appeared more sanguine about the latest delay, noting that it was not unusual for Athens to use the full extent of time it has at its disposal to meet a deadline. European Stability Mechanism chief Klaus Regling dropped a helpful reminder that the 2.8 billion euros will only be available until the end of October. If Greece has not completed the milestones (only two are out of the way so far) it will lose the right to claim this funding.

It is true that Greek governments (the current one is no different) have given the impression since the bailouts began in 2010 that they see deadlines more as suggested dates to start taking action rather than ones by when tasks should be completed. However, it is a mystery why the current coalition did not try to start off on the right foot after the summer break. Given the largely technical nature of the milestones – such as nominating a supervisory board for the new asset fund and appointing a board of directors at the newly established independent revenue agency – Friday’s Eurogroup presented a prime opportunity for Athens to spring a positive surprise ahead of much more challenging discussions in the months to come. The program review due to follow includes issues that are politically sensitive for the government, such as labor market liberalization, while its eurozone partners also face a complicated discussion with the International Monetary Fund over the issue of debt relief.

The chance to create a more positive atmosphere before getting down to these complex issues missed, Finance Minister Euclid Tsakalotos assured his counterparts that the remaining tasks would be fulfilled by the end of this month. The government now faces a race against time to keep to its word and avoid any last-minute drama that would drain away more trust and understanding.

Dijsselbloem’s initial tone hinted at what kind of stance Greece can expect from its eurozone lenders. The government will find it hard to elicit sympathy in the coming weeks if it fails to meet the existing demands. It will also struggle to place on the agenda what it believes are vital issues, such as a discussion about reducing the 3.5 percent of gross domestic product primary surplus target after 2018. The Eurogroup president batted away a question about this matter during Friday’s news conference, dismissing it as minor, somewhat irrelevant. The message to Athens was that it has to prove itself before European officials will devote any time or energy to such issues.

Athens seems to be mindful of how isolated it is. After all, Tsipras’s hosting a meeting of Southern European leaders in Athens on the same day as the Eurogroup and a week before the informal meeting of EU leaders in Bratislava, is no coincidence. Of course, there was a domestic element to this gathering as Tsipras wanted to prove his credentials on the European stage ahead of his appearance at the Thessaloniki International Fair over the weekend, but government officials appear to believe that there is potential for alliances between the states representing the so-called eurozone periphery.

The problem for Athens, though, is that the countries it is trying to forge bonds with are weak themselves: Spain is heading for its third general elections after two inconclusive results, Portugal is under pressure after missing its deficit target, Italy is gripped by banking problems and a potential political crisis if Prime Minister Matteo Renzi fails to win a referendum on constitutional reforms later this year, French President Francois Hollande is struggling with poor ratings and economic inertia, while Cyprus and Malta are small players anyway.

Schaeuble’s contempt for the Athens meeting was evident in his acerbic comments of what he termed a gathering of “socialist party leaders.” “And when socialist party leaders meet, most of the time, nothing intelligent comes out of it,” he added.

His putdown, just like Dijsselbloem’s, should be of concern to Athens. Their comments reflect not just the frustration with Greece but also the growing divide within the eurozone about the way forward. This was emphasized by the German finance minister’s comments regarding his own country’s current account surplus, which Berlin has been under pressure to address by stoking domestic demand, a move that would also be beneficial for other eurozone countries.

Ahead of Friday’s Eurogroup, the wily Schaeuble suggested that the European Central Bank was responsible for Germany’s strong exports and described its quantitative easing, aimed at stimulating the moribund eurozone economy, as “unusual monetary policy.” When asked if he had any plans to reduce Germany’s export surplus, Schaeuble’s deadpan response was: “I haven’t heard that the ECB is changing its monetary policy.”

As the latest series in the eurozone drama becomes part of our daily viewing again, it is worth considering what kind of expectations Greece should have about being able to advance its cause when ECB President Mario Draghi, who has done so much to keep the single currency intact, gets such short shrift. Tune in for the upcoming episodes to find out the answer (although to regular viewers it will be fairly obvious already).