Greece: Deal or no deal?

How optimistic/pessimistic are you about the prospect of reaching a meaningful agreement with Greece? In your opinion, what are the biggest obstacles related to possible agreement? Read few comments.

Alexander Apostolides, Lecturer of Economics and Economic History, European University of Cyprus

I have always been pessimistic in the chances of Greece finding a solution in this framework. This issue pre-existed before the election of SYRIZA in power, with the more -pro memorandum government disagreeing on the measures left to receive the final tranche of the Greek bailout. SYRIZA victory mean that the new Greek Government was determined to put a hard stance to change the nature of the conversation, which has made any agreement even less likely.

I always thought that the current discussions can at best delay the inevitable full conflict of Greece and its international institutional lenders.

This is because the issues of Greece are far from over: it needs more support, or even better, it needs debt relief to go back to a stable economic path. That would mean a new agreement – which would have to pass from parliaments in many EU states which their population is fed up with what they see as permanent support. For example Finland is in
the third year of a recession; how easy would it be for the Finnish government to pass a third bailout package or debt relief for Greece? Thus let us not fool ourselves; these discussions are all about giving Greece time of about a year. What comes after that amount of money runs out? I feel we will not see the end of the Greek saga, even if there is an agreement over the 7bn tranche soon.

Hence the biggest obstacles are the political will for all to save face, and the dogged belief to put down numbers that are actually achievable in terms of debt repayment, even though the real issue with Greece is the amount of debt. Greece is right to resist additional austerity that will affect those in greater risk of poverty, such as the demand for a reduction in pensions, even though is is wrong to resist requests for pension reform (the system needs to become more targeted). The lenders are right to challenge the vague assertions of Greece of revenue earners, for which i feel the negotiators lost too much time actually discussing (Such as plans to put students in beach bars to attack tax evasion from tourist services). But both miss the two main points:

1) the discussion should be about debt reduction, as the amount of debt is the real issue that keeps Greece at financial danger of default.

2) While the discussions are ongoing the bank run on Greek banks is catastrophic and pushing the economy into a Cyprus style financial crisis. It is not there yet, but the liquidity situation of Greeks banks must not be great. The more there is no trust of a solution, the more the banks might close one day and not open again.

Gabriel Siles-BrüggeLecturer in Politics, University of Manchester

My sense is that the key parties involved are very much constrained by their domestic constituencies. In Greece’s case, SYRIZA ran on a platform of rejecting the harsh bailout terms imposed by the creditors (while keeping Greece in the Euro) while there seems to be considerable political consensus in Germany that Greece should tighten its belt. A lot of this has to do with how the management of the Eurozone crisis has been framed: in Germany it is very much still seen through the lens of Greek profligacy while in Greece the dominant narrative is one of illegitimate foreign diktats.

As to whether an agreement will be reached this time around, the fact remains that Greece has limited bargaining options – as a default and exit from the Eurozone would hurt it more than it would the rest of the Eurozone (hence why it’s important to note how leading figures amongst the creditor parties, such as Lagarde, are talking about the possibility of a Grexit). This has led Greece to back down in previous stand offs earlier this year (over such issues as the debt, whether Greece should negotiate with the troika, etc…).

Anna VisviziAssociate Professor, DEREE – The American College of Greece

Although the past proves that serious cleavages existed within the Troika of Greece’s international creditors, the Troika has been successful in promoting an image of a coherent group of negotiators occupied with the implementation of the adjustment programme for Greece. The split between the Commission and the IMF, on the one hand, and the divides running across the technical dimension of the Troika, have become apparent now with the possibility of the IMF leaving the Troika floating in the media reports.

Up until January, in several areas, significant progress has been achieved at the technical level of negotiations with the decision to end the programme for Greece courteously made dependent on the outcome of the parliamentary elections in Greece. The rest remains history…, i.e. Tsipras, his minister of finance Varoufakis and the standoff between Athens and its creditors that pushes Greece toward the unknown.

Given the seriousness of the situation in Greece reflected in consumers’ negative attitudes, investors’ decisions to leave the country, rating agencies downgrading the credit worthiness of Greece, raging unemployment (to a large degree hidden), falling standards of living (where having a lunch is not an obvious thing for students at my university), pessimism is the only viable attitude.

The main obstacles that hinder the possibility of reaching a meaningful agreement reside both in the Troika and in the Greek government. First, it is unclear at the moment if both parties aim at the same goal, i.e. ensuring that Greece will remain in the Eurozone. Second, it is unclear to which extent politicians steering the negotiations are aware of the danger that Tsipras represents. Juncker’s jovial embraces of Tsipras in Riga (21-22/05/2015) are highly disturbing given the tragedy that unfolds in Greece. Third, the Greek government does not seem to have comprehended what is at stake in the gamble that they pursue. Fascinated by power that the January elections placed in their hands, the SYRIZA government and parliamentarians are still in that dangerous state of mind where will to power, personal ambition and interest, and cheap effects obscure the understanding of the reality.

Erik JonesProfessor of European Studies, Director, Bologna Institute for Policy Research, Paul H. Nitze School of Advanced International Studies (SAIS), Bologna Center, The Johns Hopkins University

We seem to be caught in a three-way negotiation between the IMF, the other creditors, and the Greek government.  The IMF wants to ensure debt sustainability.  The other creditors want to see evidence of firm commitment on the part of the Greeks.  The Greek government wants to demonstrate that it retains some autonomy – particularly in responding to the will of the Greek electorate.  Of the three groups, the IMF and the Greek government are the easiest to understand because they are the closest to unitary actors.  Of course the IMF has different interests, with the executive board and the international staff being only the two most prominent.  The Greek government also has to deal with differences between moderates and hardliners in Syriza.  But by contrast with ‘the other creditors’, these two actors are pretty easy to understand and so I could imagine they would be able to come to a deal that included some debt restructuring, some conditionality, and periodic reporting requirements.

‘The other creditors’ are a complicating factor because they represent a whole range of different interests and therefore also different constraints.  Some countries, like Slovakia, do not want to contribute any more to a Greek bailout.  Other countries, like Spain, do not want to see further concessions made to the Greek government.  Still other countries, like Germany, simply do not trust to Greek government to live up to its commitments.  Of course these are all caricatured impressions with plenty of subtlety to find in each of these positions.  But the bottom line is that there is little will to add more money, to write off more debt, or to offer more autonomy to the Greeks.  Worse, the ‘other creditors’ want to have the IMF involved and they are reluctant to continue bargaining with the Greek government.  Hence we are likely to reach an impasse in the negotiations.

The European Central Bank (ECB) is caught in the middle.  It possesses a number of levers that will allow it to increase or decrease the amount of time that this whole process drags on.  But the ECB cannot solve the problem and it cannot make it disappear through the magic of instilling market confidence (as it appears to have done with Spain and Italy). Moreover, the ECB has two different hats to wear.  It must act as lender of last resort to the European – and, by extension, Greek – financial system.  And it must be the guardian of systemic stability, which means it should not treat with insolvent institutions or take unnecessary risk onto its own balance sheet.  These two roles are potentially contradictory insofar as there comes a time when the ECB must switch from its role as lender of last resort in propping up the Greek banking system to its role as guardian of systemic stability when it withholds liquidity from insolvent Greek banks or refuses to accept collateral of diminished creditworthiness.  We have seen that transition take place in the case of Cyprus.  The question is whether (and when) it will take place in the case of Greece.  Should the ECB have to pivot from one role to another with the Greek banking system, the window for negotiations will close in much the same way that the music stops in a game a musical chairs.  At that point we will all look around to see who is without a seat.  I suspect that will be the Greek government, which will have to choose between exiting the euro or watching the collapse of its domestic financial system.

This point about the ECB is important because it means that this impasse between the negotiating partners cannot go on forever.  At some point, the ECB will cease to add or subtract time from the clock and it will simply call an end to the game.  I hope that does not come to pass.  Nevertheless, we appear to be moving ever closer to that moment.

Gilles Pittoors, Doctoral Researcher, Katholieke Universiteit Leuven

I am neither optimistic nor pessimistic about a possible agreement. The task is immense and the challenges too big to solve easily. Both Greece and its creditors know that a deal has to be made, because risking a Greek default would damage all parties beyond expectations. I am therefore sure that a deal will be made. The quality of the deal, however, depends on how much the parties are willing to cave in. It is a questions of who will give in first: will Germany abandon its demands for harsh reforms, or will Greece give up its resistance? The best deal would be one where both parties find a middle ground, i.e. that allows Greece some more time and room to implement changes. One cannot demand Greece to simultaneously implement such fundamental changes while paying its debts and cutting public spending. That is too much to ask. On the other hand, one cannot simply absolve Greek debt because that would give a very bad signal to the future. Neither is it possible to let Greece go bankrupt, because it cannot be allowed politically to accept that the euro is not irreversible. The biggest obstacle to a deal is the difference in views on society. Major issues such as labour market and pension systems form the core of a society, and views on that are very different between Germany and Greece. Yet I think on a bigger level the main issue is one of legitimacy. Neither Germany or Greece are alone responsible for a decision. Germany cannot decide on Greek society, and Greece cannot decide on German tax-payers’ money. It is a European problem that needs to be dealt with democratically at the European level.

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