It is no surprise that the meeting between the Minister of Finance of Greece and the other countries in the eurozone afternoon ended without result Monday night.
The conflict between Greece and the other countries are so deep and issues so crucial for all parties that a solution can hardly be found in other meeting between government and heads of state who can show more flexibility than finance ministers.
Still, it was more unsettling moves Greeks by way meeting ended at. Therefore reinforced speculation that Greece must eventually leave the euro and reintroduce their own currency.
A. Four ominous sign
- The nocturnal negotiations as most had expected would take place, was canceled.
- This second fruitless meeting between finance ministers in four days, with no signs of approach between the parties.
- It is now built up a common front where all the other euro countries are united against Greece.
- Fourth Greece has received an ultimatum, which expires everything before weekend. There are reportedly no new calls unless Greece asks for it – and accept an extension of the current loan until the summer about the conditions prevailing today.
B. Two inedible positions
- The pain Prime Minister Alexis Tsipras and his finansmininister Yanis Varoufakis, is that the economic reforms that the ruling party stood for election against must continue until summer, at least.
- There is inedible for the other euro countries are Greeks claim that they will get a loan until the summer without conditions on economic reforms.
It also implies that Greece for this period will be exempted their commitments on reforms and further budget cuts as former Prime Minister Samaras government had accepted.
“We are not engaged with bridge loan”, the Dutch Finance Minister Jeroen Dijsselbloem, who is also head of the finance ministers of the eurozone said. So: EU emergency loans (and IMF) provides loans, it is not customary bank overdrafts. Rather it is an invariable rule that there are conditions to the policy to be continued.
C. Crisis three stages
1. Syirza government has always been furious at the budget cuts that Greece has been imposed and who has been to redouble unemployment since Greece received his first emergency loans from EU countries and the IMF spring 2010. Syriza also measurable Greeks resistance against all other forms of reforms that the country is required (although the country’s finance minister now says that 60-70 percent of the reforms was / is reasonable).
But this is now largely history. Negotiations with the euro countries concerns the future: First the first six months and then coming years. Let’s take it from behind:
2. A main question is how large of its national income as the Greek government in the coming years must be set to send abroad to pay interest and possibly also to pay a little down on debt (net).
The previous government committed itself to ensure that the budget would soon show a profit so that wood and eventually 4.5 percent of GDP by could be used to interest and net debt repayments.
Syirza The government has responded with a lower number: 1.5 percent of GDP can be earmarked to pay interest abroad.
There is a significant difference. But it is worth noting three things:
- Greece has dropped the requirement for direct impairment of debt. Easing will be achieved through lower interest rates and smaller installments.
- 1.5 percent of GDP in interest payments – to be financed by tax and not new loans – is considerably more than Greece pays now, not to mention the preceding years. (Another issue is what SYRIZA voters will say when they discover this).
- Hardly anyone thinks that Greece would ever pay 4.5 percent a year to its creditors, at least not for decades to come . Both economic and political borders the impossible. And interest rates on those loans Greece has been that of the EU crisis fund and the EU countries is far lower than 4.5 percent.
We are therefore already very close to a situation where Greece for the first time many years could pay interest without taking up new loans.
It sure smells compromise long way. There are also compromise when it comes to the reforms that Greece must implement after the summer holidays, as part of such a new debt deal.
We are therefore already very close to a situation where Greece first time in many years could pay interest without taking up new loans.
3. As the hardest stage at least politically – the next six months.
The Greeks voted for change of government in protest against austerity measures and detailed management of economic policy decisions from creditors “troika” of inspectors from the EU Commission, the ECB and the IMF.
Syriza therefore say: Away with the troika, here and now.
For the creditors is essentially to preserve the system that says no loans, nor even the next six months without any conditions and inspection. So: Troika must pass (but it can change its name).
D. Conclusion
Compared with the controversy about what has happened and disagreement about how much further tightening should happen in the coming years, the controversy about “bridge loan” the next six months and if the troika role in this period almost peanuts .
disagreement about “bridge loan” the next six months and if the troika role in this period should almost be peanuts
But for parties on both sides is this important and perhaps decisive principles.
- For the eurozone applies the whole system is built up to deal with crises in individual countries – and not just Greece.
- For Syriza question is whether the government can preserve its credibility in Greece if it provides for and extends the current program until summer – without knowing how the next fixed in the negotiations will go.
For Greeks it also has a symbolic: Can the EU demand that choice does not lead to changes in economic policy in countries that have large debts?
Therefore still remains the question:
Who winks first ?
We can not exclude that the result could be that nobody wants, namely that Greece must leave the euro zone and reintroducing its own currency.
But a huge question it just government, not finance ministers, who can answer.
The answer may come sooner than many had expected.
That’s the advantage to put the matter bluntly.
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