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Our View: It’s vital that EU reaches a deal with Greece

Greek Finance Minister Varoufakis shakes hands with his German counterpart Schaueble at an extraordinary euro zone Finance Ministers meeting in Brussels

AFTER the failure to reach an agreement at last Wednesday’s meeting, the eurozone finance ministers will be hoping to strike a deal over Greece’s debt crisis when they gather again tomorrow in Brussels. The signs were not very encouraging, because despite seven hours of ‘constructive’ talks on Wednesday the ministers could not agree on a joint statement outlining the procedural steps for Monday’s meeting. However, since then, there have been negotiations with Greece, positive statements have been made and there are hopes that some compromise would be found tomorrow.

So far, however we only have what had happened at Wednesday’s meeting to go by. After it, Eurogroup head Jeroen Dijsselbloem said there was an “intense discussion” that made progress, but “not enough progress yet to come to joint conclusions.” The Greeks had rejected a draft agreement that proposed the extension of the bailout deal which is due to expire at the end of this month. Prime Minister Alexis Tsipras, who had been contacted by finance minister Yanis Varoufakis during the negotiations, stood firm in opposing the extension of the bailout beyond February 28.

The big sticking point is that the alternative – Greece’s proposal for a bridging loan that would cover its funding needs until it negotiated a new reform plan with its creditors – is not acceptable to other EU governments, something that was made very clear to Varoufakis on Wednesday. Several ministers, reportedly, made it clear that there were legal restrictions to the adjustment programme and that they would not receive approval for bridge financing from their countries; there was no legal mechanism in the EU for this type of financing, not to mention that national parliaments had to approve bridging finance, a practical impossibility before the end of this month.

This highlights the amateurishness and slapdash approach of the Syriza government which seemed to think that it could argue its case at the Eurogroup with the slogans and anti-bailout rhetoric it used in its election campaign. It was quite incredible that the Greek government actually thought it could get its way by rhetoric alone. It had drafted no plans of how its proposals would work, how and when it would implement the structural reforms that would lead to growth, how it would secure its banking sector, how it would ensure fiscal sustainability etc.

Varoufakis went to Wednesday’s meeting without quantifiable and verifiable data to support Greece’s case, presumably thinking he could sweettalk his colleagues into agreeing to his government’s demands. This slapdash approach has been the key feature of the Tsipras government, which has set itself impossible targets without having developed even a basic strategy to achieve them. Rather than try and build alliances with some of Greece’s EU partners, it has alienated a big number of them with its trenchant rhetoric which has embarrassed other governments that also have austerity measures in place.

The government’s entire strategy seemed to have been based on the premise that by playing hardball, the Eurogroup would give in to Greek demands in order to ensure the stability of the euro. This is proving a miscalculation as the contagion the European Commission fears now is not the same as that of 2010, when Greece was bailed out in order to prevent run on European banks. Now the danger of contagion relates to other governments of member states following Greece’s example and refusing to honour agreements and adhere to assistance programmes.

The extension of the bailout deal is the only option under the circumstances. If there is no agreement tomorrow, Greece would not be eligible for the €7 billion loan it was expecting to cover its funding needs – it needs €4.3 billion by the end of March. Meanwhile, the European Central Bank said it would stop accepting Greek government bonds as collateral for lending money (emergency liquidity assistance) to Greek banks which are struggling to keep their deposits. According to banking sources private sector deposits at Greek banks fell by €11 billion in January, which meant they needed to borrow more from the ECB; share prices have also been on a steep downward path. Tsipras’ defiant, anti-bailout rhetoric may have won over the Greek voters, but it had the opposite effect on the markets.

And things are certain to become infinitely worse for the Greek economy if Tsipras refuses to agree to the extension of the bailout agreement, because the alternative is the dreaded Grexit. Would he be prepared to allow the country to enter what some economists claim would be the “economic equivalent of a nuclear winter”? The “humanitarian crisis” that Tsipras and Varoufakis want to end by terminating the bailout would be made much worse if a compromise is not reached tomorrow and a Grexit becomes a possibility. We hope it will not come to this and the ongoing consultations would yield a positive result.

 

 

 

 

 

 

 

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