The Strategist

Greece and the Eurogroup: Yet another stalemate

02/13/2017 - 17:17

Discord between the IMF, the Greek government and other European institutions, politicians and civil servants broke just before a meeting of finance ministers of the EU countries on Feb. 20.

Des Byrne
Des Byrne
Last week, price of Greek bonds fell sharply, yield of two-year securities rose to 10%. These levels have not been seen since last June.

The Eurogroup wants to the crisis to be finished before February ends and elections in the Netherlands start next month. They are trying to cope with a looming crisis, which Greece may face in July, when it will have to repay more than € 6 billion. This is hardly possible without outside help or without restructuring.

The time is running out, so that the IMF, the European Financial Stability Facility and governments have to agree on an action plan. It seems that the parties came up with an overall plan that suits them, but it's hard to believe, all things considered.

A series of elections in the Netherlands, France and Germany involve the question in difficulty. Governments must find solutions now, before the situation starts to affect their internal policies.

The IMF wants the Eurozone governments to agree on debt relief for Greece and abolish the additional austerity measures for the country. Greece's national debt is unsustainable and threatens to become explosive without outside assistance, the Fund pointed out in a report.

Other Eurozone governments disagree. The very idea of yet another for Greece is unpopular among voters and taxpayers. Given the coming election, we can assume that this position is unlikely to be changed. German Finance Minister Wolfgang Schaeuble told on German TV that write-off of Greek debt would violate terms of the Lisbon Treaty, which binds the European countries.

Those are familiar problems. In transactions in which billions are at stake, brinkmanship is not uncommon.

However, the Greeks themselves are getting tired of continuing disagreement and decisions taken at the last minute. Rather than hold another bailout program write off the debt, the country was forced to seek for additional loans to avoid default. Former Greek Finance Minister Varoufakis said that terms of this lending backfire on the poor rather than on the rich, both in the euro zone and in Greece itself, The Independent writes.

Varoufakis said that they "cynically shifted huge bank losses on shoulders of the weakest taxpayers in Europe." "Rather than deal with corruption, for six years attention of the lenders has been focused on the weakest population stratums: pharmacists, retirees, nut certainly not on oligarchs," - he stressed.

Greek Prime Minister Alexis Tsipras made it clear that Athens would not comply with terms disadvantageous for the country. Default of Greece, not supported by new loans, is expected this summer. There’s not much time until the situation becomes explosive. Someone's interests have to be neglected in any way.

But whose? Refusal of France and Germany to help Greece would be clear evidence that the euro skeptics are right: "united Europe" is a meaningless mantra, which has no foundation. Citizens of these countries are unlikely to support their leaders if they decide to get Greece out of trouble.

The situation is almost a stalemate. Given usual obstinacy of European authorities and the Greeks, who have nothing to lose, we should expect that all this will drag on for several months.