The Greek crisis was never resolved but it did take a winter break from the headlines. And now, like the flowers in the Spring, the Greek crisis is making a comeback, with the debt issue hanging over everybody’s heads.
Will Europe manage to kick the can down the road to after the Brexit Referendum? A nasty Greek crisis is not in the interest of the Remain campaign in the UK and in the continent. The Eurogroup meeting resulted in yet another can-kicking exercise. Despite talking about “progress”, the decision on the next tranche of aid and more importantly Greece’s unsustainable debt has been delayed to May 24th, another two weeks.
Why now? Talks have been dragging on for a long time but Greece is running out of money. The review of its measures should have already been concluded and it should have been given money back in November. This money from the creditors, basically goes to pay them back for previous loans.
But the Third Bailout deals clearly says that after the first review, the issue of Greece’s debt will be discussed. That has always been a sensitive issue and it is happening again.
Greece always said its debt is unsustainable and that it needs to have a lower debt burden in order to be able to pay any debt at all and to grow.
The IMF wants harsher austerity measures as a stick but also offers a carrot: debt relief. That has been the IMF policy everywhere and made known also in the previous round of the Greek crisis. The organization led by Christine Lagarde has insisted it will not participate in the third bailout if the debt is not made sustainable: debt relief.
Germany does not want debt relief: the burden will partially fall on German taxpayers and is politically problematic. The timing is even more problematic given the Brexit referendum in Britain. Pushing the debate to May 24th will likely result in pushing it back to June 7th. And from June 7th to June 24th, or basically any date that is beyond the June 23rd EU referendum.
Greece made an effort to get the debt talks going: the left wing SYRIZA government passed drastic cuts to pensions amid huge protests and against a vote of the right-wing opposition parties. The only potential achievement, debt relief, remains elusive.
But Germany and the Eurogroup cannot kick the can down the road endlessly: protests can bring down the government, and this could result in even less of the debt eventually paid back. A collapse of the government or just having Greece in the news is not necessarily better than talking about debt, especially with opinion polls in the UK showing a very close race.
So far, the market is not reacting to the dramas in Brussels – we are not in 2015 or 2012. But without a solution, the euro could certainly feel the heat.
More: IMF tells Europe: Transfer union or big upfront haircut for Greece
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