ANALYSIS:With deadline after deadline being missed in Athens, can Greece survive in the euro zone?
THE TENSION is almost unbearable. Greece is into extra time in its battle to avert a catastrophic debt default within weeks. Whether it can avoid sudden death is open to question.
More than half a year has passed since EU leaders agreed to a second international bailout for the stricken country. Although some key elements of the plan have been agreed in principle, the fine-tuning has convulsed Greek politics. In Brussels the mood is downbeat. The fear remains that the turmoil could drive the country out of the single currency, raising questions about which of the other weaklings might follow it into the cesspit.
These questions are not without resonance for Ireland, which is grappling with the convoluted intricacies of the new fiscal treaty and may yet have to vote on it. It is hardly comforting that Portugal would be next in the line of fire if Greece left the single currency. Anything which shatters the 17-country artifice would herald trouble on a grand scale for Dublin.
For Greece to stay in the single currency, everything needs to go right in the coming days. It is a big ask, with the momentous force of events pushing in the opposite direction.
Deadline after deadline has been missed in Athens.
Talks planned for yesterday were cast as the absolute last chance for technocrat Greek prime minister Lucas Papademos to broker a deal acceptable to the EU-ECB-IMF troika. By mid- afternoon, however, discussions between Papademos and the chiefs of his three coalition partners were postponed until today. This all-important meeting is now set to coincide with a general strike.
Greece’s bedraggled leaders have one eye on a €14.5 billion bond repayment due on March 20th and another on a general election expected the next month.
With the troika calling for big cuts to private-sector wages and pensions and the elimination of thousands of public-sector jobs, politicians fear that signing up would be an act of self-immolation. Europe’s increasingly hard line, however, may leave them with no alternative.
Then there is the internal dynamic. On one side stands the ambitious Greek conservative leader Antonis Samaras, an opponent of further austerity who sees an imminent opportunity to become prime minister.
On the other stands deposed socialist Greek prime minister George Papandreou, who suggests postponing the election and who is under mortal threat as leader of his party from finance minister Evangelos Venizelos.
No one really knows if Greek leaders can do the deed eventually and if their foot-soldiers will back them – and no one knows quite how far the troika will push them.
It is an unsettling danse macabre,with International Monetary Fund officials at odds with their European counterparts over the limits of austerity. For the moment, at least, the EU camp appears to have the upper hand.
The rhetoric from top Europeans suggests they are resigned to go all the way to bankruptcy if the wayward Greeks do not come to their senses quickly. Some people in Athens are still betting that the contagion risks are so great that their sponsors won’t pull the trapdoor.
In the eyes of many Europeans, however, this is the very mentality which led Greece to renege on many of its obligations under the first bailout. In diplomatic circles, questions abound as to whether Germany might let Greece go.
Patience ran out long ago – and many critical issues in the bailout remain to be settled. “We are not fully in control of the sequence of events,” says a well-placed euro zone official. No understatement there.
In question is whether Greek leaders agree to enact binding legislation to execute the bailout programme come what may after the election. Only that will satisfy euro zone finance ministers, who have the power to grant a new €130 billion bailout or not.
This, in turn, is the essential condition for a complex debt restructuring deal in which Greece’s private creditors are supposed to cut the value of bonds worth €200 billion in half. The bondholders are waiting in the wings to see that the second bailout goes ahead, but the restructuring arrangement will be entirely “voluntary”, meaning it will be open to them not to participate.
The concern is that some will choose instead to trigger credit default swap insurance contracts on their debt holdings, something with potential to further disrupt volatile markets. EU leaders are betting, however, that most of Greece’s investors will decide that their greater interest is served by taking part in the initiative as they are certain to lose more than half their receivables in a default scenario.
So far, so difficult, but that’s not the end of it. Lurking in the backdrop is anxiety that the figures on which the bailout is predicated do not stack up. The basic aim is to reduce Greek debt from some 160 per cent of national output to 120 per cent by 2020, still twice the EU limit but a level which may give the country at least a chance of survival within the euro zone.
By all accounts, the target will be missed. This, in turn, has led to discussion as to whether the European Central Bank might forego its profit on €55 billion in Greek bonds it acquired at knock- down prices in the past two years.
The bank is reluctant, but has not ruled out such a move. No change is likely for as long as Greek leaders hold out.