Anyone for debt tennis?
By Nick Malkoutzis
“Breakfast with Samaras. You would never guess he'd won Wimbledon so many times,” tweeted @Queen_Europe, a fake Angela Merkel account, on Friday morning as the German Chancellor met Greek Prime Minister Antonis Samaras. The New Democracy leader is known to like a game of tennis but he is certainly no Pete Sampras.
In fact, he admitted that his tactics at this summit were limited; a serve and volley game that lacked any forehand or backhand flourishes.
“I prefer to be defensive on this issue,” Samaras said in response to questions about the longstanding matter of Greek debt sustainability. The Greek leader said his aim was first to conclude negotiations with the troika, secure the all-important bailout tranche of 31.5 billion euros and then consider all other matters.
The strategy has certain logic. Greece's dwindling credibility when the three-party coalition came to power in June had to be addressed. Somehow, three parties that are ill at ease with themselves, let alone each other, and three leaders who have doubters inside as well as outside party walls have managed to present themselves as adequate interlocutors with the troika and the eurozone. The sense that Greece might be able to turn a corner has been re-established.
This was reflected in the eurozone leaders' statement on Friday, recognizing “the determination of the Greek government” and “the remarkable efforts by the Greek people”.
However, the statement went on to stress the need for continued fiscal and reform efforts, just in case the Greeks had overlooked numerous such previous reminders. At first glance it seems as superfluous as an umpire reminding players they shouldn't step on the baseline when serving, but on second inspection it’s clear that the reminder exists in order to set up the statement’s final sentence: “These conditions will allow Greece to achieve renewed growth and will ensure its future in the euro area.”
By linking it so directly to conditionality, the message in the leaders’ statement was that Greece's eurozone future is far from guaranteed. The speculation that has haunted the country for the past three years will continue to linger, abetted by the unwillingness of the eurozone and its policy makers to make any clear commitment to keeping the single currency as we know it intact.
A couple of days after telling journalists that «Greece has made so much effort and it must now be assured of staying in the eurozone,» French President Francois Hollande told reporters in Brussels that a Greek spot in the single currency area was “not assured” yet.
Hollande scuttling back from the net, where he had the chance to score a game-winning smash, was a reminder that it’s not just Greek credibility that has been lacking over the past few years. The IMF's took a battering last week after an admission of gross miscalculation on the fiscal multipliers for austerity programs. The eurozone's has gone through the shredder thanks to a persistent failure to grasp the problem staring it in the face and stand by its currency, institutions and ideals.
This was emphasized at the Brussels summit by Merkel's apparent backpedalling over the recapitalization of banks in crisis countries. In the early hours of June 29, eurozone leaders agreed on the wording of a text that would allow Spanish and Irish banks to be recapitalized directly from the European Stability Mechanism, thereby preventing the countries' national debt being burdened by the recap fund. Greece has been holding out hope that it too might be included in this scheme.
Since then, the Germans – along with the eurozone's three other “AAA” rated economies: Finland, the Netherlands and Austria – have sought for ways to wriggle out of this deal. They have conjured up the term “legacy assets” to prevent the ESM option from applying to debt accumulated before a banking supervisor is set up in 2013. Such a move would, of course, undermine the initial purpose of the proposal, which was to break the crippling link between banks and governments.
“Once recapitalization will be possible, it will be for needs arising from that point onwards,” Merkel said in reference to Spain on Friday, causing consternation in Madrid, and Dublin as well.
The ESM option is vital to Greece as it would allow the 50 billion euros being diverted to inject new capital into its faltering banks to be shifted from national debt. This would be a significant step towards achieving the sustainability that the IMF is demanding and the Europeans are avoiding.
“Let them sort out their differences but without worsening our position,” Samaras told journalists on Friday in reference to the dispute over Greece's debt. But this seems very much like an abdication of responsibility when defining issues such as the bank recap and an official sector debt restructuring are on the table. It has been proved time after time during this crisis that Greece's position certainly worsens when the key decisions are left up to others, without any input from Athens. Since June, Samaras and his government have adopted a proactive approach in terms of pursuing reforms and fostering better understanding among their partners of the challenges Greece faces. It seems odd to opt for a more passive line on what is the most crucial issue of all, one which also affects the level of austerity that will be demanded over the next few years.
To prioritize the talks with the troika and the securing of the next instalment is understandable but to fail to have a visible position on how to make Greece's debt sustainable is puzzling. Samaras’s strategy has won Greece a few games but to win the match, he can't afford to let any shots pass him by.
[Kathimerini English Edition]