Greece

Greece Waits for the Next Check From Europe


Herman Van Rompuy, president of the European Union (left), with Greek Prime Minister Antonis Samaras in Brussels

Photograph by Jock Fistick/Bloomberg

Herman Van Rompuy, president of the European Union (left), with Greek Prime Minister Antonis Samaras in Brussels

Given the way the euro crisis has played out during the past three years, it was no great surprise that euro-zone finance ministers were not able to agree in the early hours of Wednesday morning on a formula to reduce Greece’s unwieldy public debt. That is of little comfort, though, for an increasingly anxious Greek government that faces further financial and political pressure as a result of the latest delay.

Despite about 11 hours of talks, starting on Tuesday and ending at around dawn on Wednesday, the 17 ministers and International Monetary Fund managing director Christine Lagarde were not able to bridge differences on how to bring Greece’s debt down from a projected 189 percent of gross domestic product next year to 120 percent by 2020. In fact, there was no indication that the two sides had even agreed on the deadline, as the euro zone had been pushing for 2022 to be used as the watershed.

Greek Prime Minister Antonis Samaras, who has invested in efforts to rebuild trust with Greece’s lenders by adopting the austerity measures and structural reforms they have demanded, could hardly hide his frustration at the fact that the euro group had failed for a second time in eight days to reach a conclusion and would be meeting again on Monday.

“Greece did what it had to and what it had committed to,” said Samaras in an unusually terse statement. “Our partners, along with the IMF, have a duty to carry out their commitments.”

The new delay means Greece has yet to receive approval for the disbursement of as much as €44 billion ($56 million) from its bailout package, which it is expecting to receive by next month. The largest chunk of this, €31.5 billion, was due to be released in the summer, but lenders held off as Greece went through two tumultuous national elections. The bulk of that tranche, about €25 billion, is needed to complete the recapitalization of the country’s faltering banks. Some of the remaining money is intended to go toward paying €8 billion in arrears that the cash-strapped government owes to suppliers, social security funds, hospitals, pharmaceutical companies, and other organizations.

The longer Greece goes without this money, the more liquidity dries up and the more difficult it becomes for the state to carry out its basic functions. Earlier this month, Finance Minister Yannis Stournaras warned politicians in the European Parliament that there was a growing chance of a Greek default if Athens did not get the funding promptly. “The risk of an accident is very high,” he said.

The vicious circle in which the Greek government finds itself financially is underlined by the fact that it had to raise €5 billion through the sale of Treasury bills last week, at a yield of 3.9 percent to 4.2 percent, in a rollover of T-bills issued in August to pay a maturing bond that the European Central Bank had bought via the Securities Markets Program (SMP). The ECB had to first give permission to Athens to go beyond its T-bill limit. The paper was mostly bought by Greek banks, which are short of cash themselves.

The delay in finding a solution to Greece’s immediate liquidity problem and its longer-term debt concerns, however, are also ratcheting up the political pressure on the ruling coalition. The three-party coalition’s representation in the 300-seat Parliament fell from 177 MPs to 167 after a stormy vote this month on the latest austerity package demanded by the EU and IMF. In an effort to convince doubting lawmakers, and voters, to support the measures, Samaras had argued that approval of the package would pave the way for the release of new bailout installments and a solution regarding Greece’s debt sustainability. As long as this fails to materialize, the prime minister’s opponents will have a growing arsenal of ammunition to fire at Samaras.

“The prime minister stubbornly refuses to use the negotiating power he is being granted by the disagreement between our partners,” said Alexis Tsipras, the leader of the main, anti-austerity, opposition Syriza. “Clearly not up to the job, he is blaming the holdup on technical difficulties.”

Another Syriza MP, Dimitris Papadimoulis, claimed the coalition had been humiliated by the failure of the euro group to arrive at a decision.

Samaras and his government will now hope for an agreement between the euro zone and the IMF on Monday to avoid further political damage at home. The Greek prime minister was due in Brussels on Wednesday before an EU leaders’ summit the next day, when he will have the chance to discuss his concerns with his counterparts.

“It is not just the future of our country that depends on the successful outcome of the effort over the next few days but the stability of the whole euro zone,” Samaras warned in his statement.

Malkoutzis is a Bloomberg Businessweek contributor.

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