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EU and Greece Continue Their ‘Bailout’ Fantasy: No Promise of Genuine Debt Relief in latest Deal

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

The latest agreement between Greece and the so-called Troika (the European institutions and the IMF) is as my colleague Alex Christoforou has said just one more case of the can being kicked further down the road.

When I visited Greece in August last year, shortly after Syriza’s capitulation and the latest bailout agreement, people told me I was not seeing the whole picture and that private assurances had unquestionably been given that Greece would be given a debt write-off.

I pointed out – to general derision – that the latest bailout memorandum in fact explicitly ruled out a debt write-off and that those who were entertaining hopes of such a write-off were deluding themselves about the political mood in the creditor states – Germany especially.

In the event, as the weeks unfolded and it became known that the technical staff of the IMF had done the sums and had concluded that without a debt write-off the agreement would not work, hope of securing a debt write-off in Greece rose even higher. 

It was said that since the IMF’s consent was an integral part of the agreement the view of the IMF’s technical staff would ultimately prevail and the Germans and the others amongst Greece’s EU creditors would have to back down and come round to the fact that a debt write-off is unavoidable.

Unfortunately some commentary in the international media made the same claims, which were duly picked up in Greece where they raised hopes of a debt write-off even more.

The political reality is that with her position in Germany under challenge Angela Merkel cannot afford to agree to a debt write-off even if she wanted to.  With the AfD on the rise and parts of the CDU restive, her agreement to a write-off of even small proportions of loans the Bundestag only authorised after assurances they would be repaid in full would be an act of political suicide.  Nothing about Merkel’s career points to her being the sort of person who would be prepared to take such a step even if the whole future of the entire EU project ultimately depended on it.

As for the IMF, optimists who assumed it would rebel and refuse to go along with the bailout unless the concerns of its technical staff were heeded, simply do not understand the essentially political nature of the organisation.  Though its staff are deeply unhappy – to put it mildly – about a bailout that doesn’t add up, ultimately there was no possibility of the IMF refusing to support a bailout backed by the US and the EU and by the governments of Germany and France.

So it has proved.  The latest agreement simply perpetuates the status quo.  A further $10 billion of bailout funds have been provided to prevent Greece falling apart.  The lunatic demand that Greece should run a primary budget surplus of 3.5% of GDP however remains in place.  As for the hoped for write-off, the Eurogroup statement merely makes some vague promises to look at possible extensions of maturities and to smooth out the weight of repayments.  That moreover will not happen before 2018 i.e. until after the next German elections are out of the way.

In return Greece has had to take a further series of draconian steps to persuade its creditors it is abiding by the terms of a bailout agreement the IMF’s own technical staff say is unsustainable.

There is nothing new about any of this.  The IMF’s technical staff are known to have been unhappy ever since the first bailout Greece made with Greece back in 2010.  Even some members of the IMF’s Board are known to have argued against it.

As for German promises to look at ideas for relieving the weight of Greece’s debts, they come up with the regularity of clockwork and invariably end up meaning little or nothing.  It is known for example that during the fraught negotiations last year Merkel strung Tsipras and Varoufakis along with such promises, apparently on more than one occasion telling them “where’s there’s a will there’s a way” (supposedly a favourite phrase of hers).

What is truly remarkable about this is not that these German promises get made but the willingness of the Greeks to go on pretending that they mean anything.  Similarly it is nothing short of bizarre that the Germans should continue to pretend that all will be well and that Greece will one day repay its debts when, with the same regularity of clockwork, each bailout regularly fails leading Greece to come back asking for more money.

Such a joint refusal to face reality can have only one outcome: Germany will go on throwing money at a problem which will never go away, whilst Greece will remain locked in indefinite recession. 

Eventually the point will come when some sort of breakdown takes place.  The question then will be how much money will the Germans thrown away and how much of Greece will be left.


The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

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