EUROPEAN DIARY:Greece seems likely to receive another reprieve from insolvency, but only at the cost of a humiliating erosion of sovereignty
GREECE FACES yet another tense moment as it attempts to avert a renewed threat of national insolvency. The country seems set to receive a last-minute reprieve from its sponsors, but their patience is running as dry as the empty state coffers in Athens and they will extract a high price for any new aid.
Again the saga overshadows everything in Brussels. Even as Portugal went into the rescue zone last month, despairing officials were already fretting about the increasingly bleak fiscal vista back in Greece. Far from gaining confidence one year into its bailout, the opposite is true: the country appears to be in the grip of a full-blown economic seizure.
On the horizon right now is an increased international loan package, but only at the cost of drastic intrusion into the country’s internal affairs, with external supervision over tax collection and privatisation. Whether such a humiliating erosion of sovereignty will wash with the Greek public can only be guessed at, but there is plenty of reason to look askance from Ireland at this turn of events.
In the coming days, a “troika” mission to Athens from the EU Commission, the IMF and the European Central Bank (ECB) will confirm what everyone already knows. Greece has no hope of making its return to private debt markets next year.
Its reform plan is at a standstill and its debts are mounting at a frightful rate. What is more, thousands of angry protesters have again taken to Syntagma Square in Athens, while support for its Socialist government is on the wane.
As Europe takes stock of all that, familiar problems that accompanied Greece’s pitiful slide into the abyss return: denial, division, a lack of clear political leadership and a predilection for partial solutions. This helps explain the storm over debt restructuring, a cacophony of mixed messages over the future course of events, ardent brinkmanship and other blatant attempts to stir the Greeks into resolute action.
Last week the Greek European commissioner, Maria Damanaki, suggested that a return to the drachma was on the agenda if the country did not quickly gain control over its finances.
Damanaki may be a low-key personality but she is still a member of the EU executive and, in the natural course of events, would know more than most about the swirl of debate in Brussels about her country. In mentioning the unmentionable prospect of a euro zone break-up, she didn’t leave much to the imagination. The commission dismissed her remarks as a “figure of speech” but the message from within the EU executive seemed clear enough. Severe consequences could be in store if Greece does not play ball.
Ireland is not Greece, the tired old refrain goes. At virtually every stage of the way down, however, the Greek debacle set a series of grim precedents for Ireland. To be sure, the forces at work in each country’s economic implosion are different.
Whether it is the grinding collapse of market confidence, however, or the chaotic resort to external saviours, the eventual working out of domestic crisis was similar enough.
Just as Greeks were told early last year to follow the Irish austerity example, their leaders are now being told to follow the example of the Irish and Portuguese by uniting behind a national consensus for recovery. Weeks of European pressure on the country’s politicians to come together in this way shows just how severe the latest dose of medicine is likely to be. The country’s centre-right opposition won’t come on board, however.
Although prime minister George Papandreou enjoys a solid parliamentary majority, an opinion poll at the weekend showed his party had lost its lead for the first time since his election victory in autumn 2009. It was only a single poll, but an apt illustration of the political price of austerity.
None of this augurs particularly well for the Kenny administration in Dublin. Despite a cascade of denial that Greek debt default is on the cards, the very whiff of the notion on markets at the moment is enough to keep Ireland’s notional borrowing costs at an all-time high.
That is hugely significant because the Government wants to make its return to private debt markets next year. At current bond yields, despite all the effort made thus far, Ireland remains shut out from markets.
This reflects doubt over the sustainability of the State’s abundant bank debt and anxiety that any Greek restructuring might have a knock-on impact for Ireland. Thus do events far from home herald further danger for Dublin.
As the European authorities prepare another loan package for Greece, their task is to convince the country’s many doubters that it can, eventually, pay down its debt and bring the economy under control. This time around, however, they want full command of the tiller. For all concerned, the stakes are rising rapidly.
