Greece is causing headaches for Brussels and the International Monetary Fund (IMF) once again, says Jeremy Warner in The Sunday Telegraph. The latest episode in the long series of crises and fudges over its debts – just in case you’ve lost count, Greece is on its third rescue package since 2010 – was triggered by the IMF “finally coming to its senses”. Its report last week showed that Greece is being crushed by its “unsustainable” debt load of 179% of GDP.
Under the deal struck in 2015, Greece was supposed to aim for a primary budget surplus (excluding interest payments) of 3.5% of GDP. It managed 2% last year, but this was due largely to one-off measures; to reach 3.5%, Greece would need extra austerity measures worth 2% of GDP, reckons the IMF. This seems politically impossible and the only realistic way out is debt relief.
When the IMF made this clear, the Greeks, the European Commission and European creditors protested, notes Wolfgang Munchau in the Financial Times. “Europeans are not used to such bluntness… they all want to keep up the fairy tale of Greek debt sustainability for a little while longer.” Greece has already had bond maturities extended and interest costs lowered under the terms of its second bailout.
That wasn’t enough to make the overall burden manageable, but Germany, whose taxpayers get to vote in national elections this year, won’t want to be seen making any concessions to spendthrift Greeks. The Dutch, also prominent advocates of tough structural reforms rather than more loans, are going to the polls next month. Until this impasse is resolved, Greece will not receive the next tranche of bailout money from its current €86bn rescue package.
It won’t run out of cash until July, but with the Dutch parliament being dissolved soon, the hope is all the parties can reach agreement by next Monday, when euro group finance ministers meet in Brussels. There will no doubt be some sort of fudge to kick the can down the never-ending road again, though probably after Monday. The IMF may soon pull out of the Greek rescue, leaving the EU “free to mismanage [it] on their own”, says Munchau.
“There is… an element of the canary in the coal mine about [Greece’s] continuing economic road crash”, as Warner notes. Greece is a small economy and European policymakers can delay the day of reckoning as long as they like while it succumbs to stagnation and depression. But when the design flaws of the single currency become too much to bear for Italy, and its unsustainable debt load moves back to centre stage – then look out below.