Greece is unlikely to win any writedown on debt owed to the euro area and should instead focus on possible relief in the form of longer repayment periods, said Olli Rehn, who helped avert a Greek exit from the European single currency at the height of the financial crisis.
The comments by Rehn, who was European Union economic and monetary affairs commissioner from 2010 to 2014, highlight a top test for any Greek government led by the anti-austerity Syriza party of Alexis Tsipras.
Syriza, an opposition alliance that’s atop polls 10 days before Greek general elections, has called for a writedown on some of the national debt of about 180 percent of gross domestic product. The euro area, which has already eased repayment terms on emergency loans to Greece, has committed to considering “further measures and assistance” to ease Greece’s debt burden.
“It doesn’t mean that there would have to be a classic haircut on capital,” Rehn, now a vice president of the European Parliament, said in an interview yesterday in Strasbourg, France. “Instead, I would expect that the euro-zone countries would rather look at ways and means of improving debt sustainability by further extending loan maturities.”
New Greek political forces risk clashing with old European formulas for handling distressed euro-area governments after the Jan. 25 ballot in Greece. The country remains the weakest link in the euro area after triggering the region’s debt crisis in 2009 and receiving 240 billion euros ($283 billion) in international aid pledges in return for budget cuts and market deregulation.
Greek Prime Minister Antonis Samaras, scrambling to close a three-percentage point gap between his New Democracy party and Syriza, is stepping up campaign-trail assertions that his pursuit of budget discipline since taking office in 2012 has restored Greece’s economic health. In 2014, the country emerged from a six-year recession, returned to bond markets for the first time since 2010 and was on the verge of balancing its budget.
By pressing ahead with unpopular spending cuts, Samaras has also kept international aid flowing to Greece, served notice that the country would exit its rescue before the 2016 end-date and pledged to negotiate a less-intrusive precautionary credit line.
All the while, Greek unemployment has stayed above 25 percent, fueling support for Syriza, the No. 2 force in the Greek Parliament. The protest party forced general elections to take place this month instead of in 2016 as originally scheduled by denying Samaras the parliamentary votes he needed in December to gain a supermajority for his candidate for the Greek presidency, a largely ceremonial post.
Rehn, a Finn who became EU economy chief three months before Greece was forced to request emergency aid from the euro area and the International Monetary Fund in April 2010, said the next Greek government will have limited scope to loosen the fiscal-austerity and market-opening conditions that have underpinned the rescue.
“My personal view is that there’s not much room for maneuver in renegotiating the terms of the economic-adjustment program,” he said in his Strasbourg office, which offers views of the Black Forest across the border in Germany.
Rehn also warned about any inconclusive Greek election this month, saying Greece should avoid a replay of 2012 when a political stalemate led to twin parliamentary ballots over six weeks, a suspension of the aid program and speculation the country might be forced out of the euro. Such a scenario faded after a hard-fought revival of the Greek rescue during the first six months of the Samaras government.
“From the Greek perspective, the best way to move forward is to reduce any uncertainty, which means first reducing the time needed to build a new government and second confirming and negotiating the next steps on the EU-IMF program,” Rehn said. “The year 2012 was a missed economic year for Greece, which led to big social costs.”
He said that, while the euro area is better equipped now than it was three years ago to handle any Greek turbulence, that doesn’t make the idea of a Greek departure from the single currency — a so-called Grexit — more plausible.
Saying all the main political parties in Greece support its membership of the 19-nation euro, Rehn called on foreign citizens and investors to distinguish between political noise and economic reality.
“I would find it nonsensical to talk about a Grexit in a situation where the worst is over and the country is moving toward a better direction,” he said. “There will be plenty of political shadow-boxing and political theater in the coming weeks and months in Greece, but I trust that citizens and market participants can see through it and realize this is part of the cyclical process of negotiations with Greece.”
Rehn, who said he has met Tsipras and some of his advisers, said the whole Greek political class must focus on the underlying challenge of reducing the role of vested interests in Greece and establishing a national system of “good and fair governance.”
A soccer player and fan, he said this wasn’t the time for Greek political leaders to score an own-goal by losing sight of the national interest.
“Greece is heading toward an exit from the rescue program on the condition that the country now implements the reform program,” Rehn said. “I only hope that the Greeks will not spoil this last mile by too-intensive political turmoil.”