The unfolding Greek debt (relief) crisis – Where do we stand and what’s next to come
by Nikos Koulousios
Once again we have reached the tipping point on the Greek debt relief issue. The crucial date is now the 5th of December, when the finance ministers of the Eurozone states will meet to discuss the second review of the 3rd bailout program and, as promised to the Greek government, they will make decisions on a road map for debt relief. However promising this may seem, once again we are witnessing a significant divide among Greece’s lenders on the issue of debt relief. The last time the troika promised the Greeks to open a discussion on debt relief was when Samaras was in power, in 2012. At that time, Greece’s lenders promised Samaras that if he manages to achieve primary budget surplus for Greece, then they would discuss measures for debt relief. Samaras did manage to deliver primary surplus the following years, something that came at a great cost for the Greek economy, but, the Europeans never kept their promise. The main opponent of debt relief was, and still is, Germany and, particularly, Wolfgang Schauble. Debt relief is not good for German elections.
If Tsipras doesn’t get what was promised to him by the Europeans in the summer of 2015, then it is likely that he will call for snap elections, putting the blame on Germany and the promises that were made but not kept. How many elections can the continent take at this point? And what good could they bring in a Europe already torn by nationalism?
The story so far
In the summer of 2015, the SYRIZA-ANEL coalition government signed a new memorandum, after hard and long negotiations with the Europeans, after a dramatic referendum in Greece and with the Greek economy in shambles due to capital controls that Athens was forced to impose to prevent deposit outflows. The Greeks said NO (Ochi) to a new austerity-ridden bailout, but the Europeans didn’t care too much for the outcome of the referendum. They put a new ultimatum to the Greeks, demanding that the Greeks accept the new bailout program – or else, they would have to leave the Eurozone and the Union altogether. Some people used the word “coup” to describe the undemocratic way that the will of the Greek people was grossly ignored. The Greek government, although they recognized that more austerity will not help the Greek economy, they signed the new bailout, but only because it was promised to them, on paper, that debt relief will be on the table very soon.
The climate for Greece has changed in the months that followed. The first review of the 3rd bailout program was successful, and the Europeans started discussing a road map for debt relief, that includes short-term, mid-term and long-term measures. Keep in mind that it is the long-term measures that constitute a final solution for the Greek debt drama – everything else is just an interim solution that will not have a great effect on the Greek economy and will not create optimal conditions for investments and growth.
There are a lot of key players right now that support the claim of the Greeks for a generous debt relief. And there are others, mainly Germany, that insist on their position that any concrete measures for a true debt relief should be discussed after two years, after 2018.
The who is who of the current phase of the crisis
European Central Bank Governor Mario Draghi, during an appearance at a European Parliament committee in Brussels on Monday 28 November, said that ” the current momentum in finding a solution for Greece’s debt must not be lost”. Asked by SYRIZA MEP Dimitris Papadimoulis to comment on statements that talks on the country’s debt could delay up to two years, he replied: “Greek people have made a great progress in the last few months … it is important not to disrupt this progress.”
Speaking in Brussels on Tuesday 29 November, the president of Eurogroup Jeroen Dijsselbleom stated that “Eurozone finance ministers are ready to further flesh out possible debt relief options for Greece once further progress in made in the latest review of its bailout program. This would allow the Eurogroup to have a further discussion on the short, medium, and long term debt measures needed “.
European Economic and Monetary Affairs Commissioner Pierre Moscovici started a two-day official visit to Athens on Monday 28 November for talks expected to focus on the progress of Greece’s bailout program implementation. In an interview with Ethnos newspaper on Sunday, Moscovici backed the launch of debt relief talks for Greece without delay. “According to the conclusions of the first review and the good progress which has been achieved in the second, I believe the circumstances are right for talks at the next Eurogroup,” he said, referring to the next scheduled meeting of Eurozone finance ministers on December 5.
Moscovici added that discussions about the debt “will play a significant role in the IMF remaining in the program”. Should the agreement on the review be reached in time, December’s meeting will see ministers engage in intense negotiations between the euro area and International Monetary Fund on whether the IMF will join the €86bn bailout of Greece – a decision with major implications when it comes to parliamentary support for the Greek program in Germany and some other euro area nations.
A key point to be resolved in those talks will be how long Greece will be expected to maintain the 3.5 per cent primary budget surplus target that the country is scheduled to hit in 2018. According to Dijsselbleom “It will be one of the key debates. The IMF has argued that you cannot ask Greece to maintain that for a very long time, and others have said that, `well, it’s going to be necessary given the fact that Greece has to comply with the Stability and Growth Pact’. So, in between those two we will need to find a realistic path forward, and I’m saying realistic because I think the IMF has a point that running a primary surplus of 3.5 for a very long time is a huge thing to ask”.
The IMF also supports the Greek request for debt relief. From the beginning the IMF was saying that debt relief is necessary for the Greek economy to return to growth. Two times in the past, the IMF has bent their own rules so that they could join the first two bailout programs. The IMF is not supposed to lend money to a country, when the debt of that country is not sustainable. And the Greek debt is definitely not sustainable.
So, the IMF, the ECB, the European Commission and the president of the Eurogroup all agree that something must be done now about the Greek debt. The odd one out among Greece’s lenders is none other than Germany. The usual suspect in this never-ending game of pressure and blackmail is German finance minister Wolfgang Schauble. It is the same person who insists on having the IMF join all the Greek bailouts, but he constantly ignores the IMF position for a generous debt relief.
The Washington Group meeting that never happened
On Friday 25 November, according to a report in German newspaper Süddeutsche Zeitung, the Finance Ministers of Germany, France, Italy, Spain and the Netherlands were supposed to meet in Berlin with IMF representatives to discuss the Greek debt crisis (aka the Washington Group). According to the report, a compromise would be sought during the meeting concerning the standing IMF demand that Greek primary surplus targets are lowered beyond 2018, and significant debt relief is granted to Greece in order to make the latter sustainable. According to other reports, short-term measures and even medium-term measures were to be discussed, despite repeated statements by German’s finance ministry leadership this month that debt relief is unnecessary before 2018.
The Greek press immediately pointed out that the meeting would be held without the participation of Greek Finance Minister Euclid Tsakalotos or any other official representing the Greek government. Once again, the Europeans were supposed to decide the fate of the Greek economy, without any Greeks being present. This comes as no surprise. The democratic deficit within Europe has been widening since the crisis hit the continent. Referenda are being ignored, countries are being “blackmailed” with closed banks, and decisions are made for us, but without our participation.
But the meeting never actually happened. According to the German Finance Ministry’s spokesperson, Friederike vn Tiesenhausen, the meeting was postponed because it was decided that no emergency situation had arisen. But the German newspaper Süddeutsche Zeitung tells a different story. The newspaper that had first revealed the news about the mini EU summit, returned on Friday 25 November arguing basically that the German Finance Ministry is lying. The Süddeutsche Zeitung article exposes Wolfgang Schaeuble as the main responsible person for calling and cancelling the mini summit. The German paper paints the picture of a finance minister who manipulated events, and who lied about the real reasons for postponing the meeting. According to the paper, the real reasons that Schauble cancelled the mini summit were a) because he didn’t want to create high expectations to the Greeks on debt relief, and b) because he didn’t want to appear that he is negotiating at this crucial moment the Greek debt issue. After all, he is the one who repeatedly said that “those who talk about debt relief for Greece, they are not helping Greece” – that was his way of responding to President Obama’s urge for debt relief and an end to austerity.
Does Germany really want to save the Greek economy?
How democratic is it that one Eurozone finance minister appears to be calling all the shots? Every time there is a Eurogroup meeting, Schauble appears beforehand on camera and basically announces the results of the meeting, before it even happens. Agendas have been set and decisions have been made in advance, by him and his “satellites”, and the Eurogroup meetings are there only to confirm what he has decided already. How European is it that one country alone should decide for the fate of another country, and subsequently for the fate of all other member states? What kind of mandate allows a German politician to stubbornly impose his will on the rest of the Union? Who appointed him Chancellor of Europe’s finances?
A lot of Greeks believe that the German establishment never really wanted to save Greece. They point out that every time a glimpse of hope appears in the turbulent European sky, Schauble will do anything in his power to shut it down. One of the theories that attempt to explain why Schauble is acting against a final solution to the Greek issue, talks about the so-called arms deals that Greece has been forced to make with its lenders. According to that theory, in the last 2-3 decades we have witnessed a transfer of wealth from the European South to the European North, mainly in the form of lucrative arms deals.
Germany is undoubtedly Europe’s sole growth engine. France is too weak and the UK is out of the game. But for Germany to reach that hegemonic status, a lot of other countries had to suffer. For example, in Greece we stopped producing machinery that we used to produce in the 80’s, so that we will have to import everything from Germany (and other EU manufacturers). On top of that, Greece was forced for many decades (even after the crisis hit the country) to make arms deals with Germany (and France). The profits that especially Germany made out of these arms deals are immense. Did Greece really need to spend all that money on buying helicopters and submarines from Germany? Aren’t we a member of NATO and of the EU? Aren’t we supposed to be protected by our allies? Or is it that being a member of NATO and the EU, comes with the obligation to buy arms from certain Western European manufacturers?
The Greek president Prokopis Paulopoulos said to Moscovici yesterday in Athens, that a major portion of the Greek public debt was created when Greece was forced to agree to arms deals that the country didn’t exactly want to make and didn’t really need. Those arms deals were made to support the interests of NATO and the EU. Germany should not forget that. It has profited immensely from these arms deals. And let’s not forget how much corruption is hidden within those shady arms deals, corruption that is only credited to the Greeks so far, and no one talks about the other side, the side that corrupts and bribes in order to get the best deals from their EU partners. So when they talk about the Greek debt, Germany should not forget that Greece has spent lots of money in order to protect Europe’s borders, and the German arms industries have been hugely profited by this arrangements for decades in the past.
But how does that answer to the question Why doesn’t Germany really want to save Greece? Many Greeks claim that now that crisis has hit Europe, the same arms deals that were happening before can not continue to happen, since the countries of the South are debt-ridden. So the rich countries of the North, and especially Germany, who is the only player now in the game, wanted to replace the arms deals of the earlier years with the loan-business, the bailout deals. It is a rather cynical theory. But if you look at the facts, you will see that one way or another, the transfer of wealth from the poor South to the rich North has been kept intact, although there was a major crisis in Europe.
Another theory as to why Schauble acts in that way, talks about Schauble’s plan to create a two-gear Europe. Greece and the rest of the Southeuropean states already drowned in debt, will have to implement impoverishment policies for years to come, lose big chunks of their GDP, become more dependent on foreign loans and on Germany, and get in a vicious circle of austerity and depression, that would eventually result in an even poorer European South. The hardcore of the fiscally disciplined European North and West will become even richer (through loans, monopolies etc), while the European periphery, mainly the South and East European states, will eternally struggle to compete with the rich North, in an unfair game that will make them poorer than ever before. That means a Europe where one country will have their basic salary as high as 1500 euros, whereas the next country will have it as low as 300 euros. Apropos, these numbers are very close to what is already happening across the European Union.
There are a lot of critics of Schauble’s tactics, not only in Greece, but also within Germany itself. Dr Heiner Flassbeck (former director of UNCTAD) has been very critical on austerity and of the role of Germany in the current Euro-crisis, claiming that Germany has caused the crisis, and it is Germany that must solve it. Flassbeck says German economic policy put Greece into crisis and progressive Germans must stop the irrational bleeding of the Greek people. He goes one step further and describes how Germany has basically exported its unemployment to the South.
Democratic deficit in the EU – Election time is closing in, so is a fourth bailout program for Greece?
In a democracy of the Western type, the winner takes it all, and the winner gets to decide unilaterally the fate of all others. In a European Union governed all the more by the harsh directives of an extreme neoliberal agenda, all members are not equal. The weaker states will have to obey to the richest ones. And so, by creating a two-gear Europe, Germany will finally reach its ultimate goal of becoming officially the hegemonic force that rules all others.
Now, Athens is looking to conclude the second review of the Greek program (third bailout), as well as to persuade European creditors to agree on short-term debt relief measures. The latter would give the embattled leftist Greek government an opportunity to point to a much-needed political success, and encourage the IMF to rejoin the program as a lender. If the IMF finds common ground with Schauble, as it usually is the case, there are fears that it will be detrimental for Greece. They will give very little, like very few short-term only debt relief measures, and they will ask EVERYTHING in return.
EU officials are already talking about the need for a fourth bailout program, which will of course be accompanied with more austerity measures and severe cuts in public spending. We could argue here that when the need for another, new, bailout arises, that probably means that the previous three did not work as planned. Or the recipe is incorrect, but the recipe never really changes – and when it does, it is to become even harsher for the Greek people.
There is no hope for long-term debt relief measures to be decided upon in the upcoming Eurogroup meeting. The Greeks have been once again lowering the bar to an absolute minimum of relief measures that can help he Greek economy return to growth – measures that were promised to them in the summer of 2015, and back in 2012. Germany is still saying no to that. If Tsipras doesn’t get what was promised to him by the Europeans, then it is likely that he will call for snap elections, putting the blame on Germany and the promises that were made but not kept.
Elections is a catalyst also for the other side, for the Germans. They don’t want to appear that they are doing a favor to the Greeks, because that will cost them votes in the upcoming German elections. For years the German media and many German politicians have been smearing Greece by calling it untrustworthy, corrupt, a heavily flawed pariah of Europe that should be kicked out of the Union. How can they now change the rhetoric and allow for debt relief to take place? They themselves will seem untrustworthy to the people who believed their propaganda and voted for them. It is a sad reality, but it looks like the future of the Greek economy has to wait for the CDU to win this election…
In this context, solving the Greek debt issue once and for all seems to be an impossible task. Let’s not forget that Europe as a whole is entering a critical election period, the results of which may lead to new and irreversible developments. After Brexit and the Trump phenomenon, nationalism and euro-skepticism are knocking hard on the door of Europe. Italy will have a crucial referendum soon, which will determine the future of prime minister Renzi. If Renzi loses, Italy will probably have elections and Beppe Grillo could be the next prime minister. In Austria the extreme right is advancing. And France, since it cannot compete anymore with big-fat-Germany, may turn to nationalism too and vote for Marine Le Pen.
My only hope is that Germany and others will not use the fear of nationalism and euro-skepticism to avoid making some much needed bold decisions on the future of the Greek economy and of the EU in general. Elections are supposed to be the hallmark of democracy. Let’s not turn it into a scarecrow or a scapegoat to help advance only our domestic ambitions.