Personalities Clashing Over How to Handle New Greek Bailout By ANDREW HIGGINSJULY 23, 2015 NEWS CLIPS By Associated Press 00:45 Greek Lawmakers on New Reforms Continue reading the main storyVideo Greek Lawmakers on New Reforms Greek lawmakers spoke on Thursday after its parliament voted to overwhelmingly approve a second batch of reforms demanded by the country’s international creditors. By Associated Press on Publish DateJuly 23, 2015. Photo by Louisa Gouliamaki/Agence France-Presse — Getty Images. Watch in Times Video » Advertisement Continue reading the main story Continue reading the main storyShare This Page Email Share Tweet Save More Continue reading the main story BRUSSELS — To man
Greek Lawmakers on New Reforms
Greek lawmakers spoke on Thursday after its parliament voted to overwhelmingly approve a second batch of reforms demanded by the country’s international creditors.
By Associated Press on July 23, 2015. Photo by Louisa Gouliamaki/Agence France-Presse — Getty Images. Watch in Times Video »
BRUSSELS — To many Greeks, the debt the country has amassed is the evil fruit of austerity policies, imposed from the outside, that asphyxiated its economy and trampled on its sovereignty.
To the International Monetary Fund, the debt of more than 310 billion euros, or almost $339 billion, is more of a mathematical problem. After years in which it was a stern advocate of tough austerity policies, it now says that there is no way that Greece can reasonably pay its debts and needs to have a substantial amount of it forgiven.
Then there is Germany, Greece’s largest single creditor, which treats Greece’s debts as a sacrosanct commitment that must be paid as a matter of law and of principle.
As Greece and its creditors begin working on the details of the latest bailout package — the third for Athens in the past five years — the issue of debt has become something of a Rorschach test. Nearly everyone agrees that its debt is unsustainably high, but figuring out how to grapple with it has unleashed a volatile mix of politics, economics, history and even morality.
MULTIMEDIA FEATURE
Greece’s Debt Crisis Explained
Behind the efforts to resolve the country’s debt problems and keep it in the eurozone.
The economic argument in favor of debt relief is that Greece’s depression-scarred economy cannot be expected to carry the weight of debts that now amount to around 175 percent of gross domestic product. This is already far above what the I.M.F. set as a “sustainable” target of 110 percent, and could increase to 200 percent and more in coming years if the economy withers further.
Debt relief, many economists say, is no longer a matter for debate but an unavoidable necessity. “There is no way around it. It is mathematically clear,” said Peter Bofinger, a German economist who belongs to a group of experts that advises the government in Berlin.
Mathematics, however, has never had much bearing on the debate. Athens and Berlin instead often focus on what each sees as the moral crux of the issue, taking opposing and often emotional stands that only make a deal harder to achieve.
“I have been involved in debt negotiations for 40 years and never found it useful to moralize about the problem,” said Charles H. Dallara, a former managing director of the Institute of International Finance, a group representing financial insitituions that played a central role in negotiations allowing Greece to eliminate more than half its debt to private creditors in 2012.
“It makes no sense to demonize the debtor or the creditor,” he said. “But there has been a constant tendency with Greece to treat the debtor as a sinner. This has been a big part of the problem. It created a lot of resentment in the populations of creditor countries” that do not want to see their taxes going to an unworthy cause, and has also “catalyzed deep resentment in Greece.”
TIMELINE: GREEK DEBT CRISIS
- December 2009 Credit ratings agencies downgrade Greece on fears that it could default on its debt.
- May 2010 Europe and Greece reach a $146 billion rescue package, conditional on austerity measures. Some economists say the required cuts could kill the patient.
- October 2011 Banks agree to take a 50 percent loss on the face value of their Greek debt.
- July 2012 Stocks soar after the head of the E.C.B. says policy makers will do ''whatever it takes'' to save the euro zone.
- January 2015 Greek voters choosean anti-austerity party. Alexis Tsiprasbecomes prime minister.
- July 2015 Greece is forced into broad new concessions to receive itsthird international bailout in five years, a package of as much as 86 billion euros, or $96 billion. The dealdeepens fissures within the E.U.
The I.M.F.’s hardheaded, numbers-based approach often infuriated Greece’s left-wing government when it was applied to budget deficits, tax revenues and other demands that creditors imposed.
Just a month ago, Prime Minister Alexis Tsipras told cheering lawmakers in the Greek Parliament that the monetary fund “bears criminal responsibility for the situation in the country” and must be banished.
But, after a July 14 I.M.F.report calling for urgent relief, Mr. Tsipras and his followers are now cheering the fund as a welcome and influential ally.
The monetary fund recommended either a “very dramatic extension” of payment deadlines by up to 30 years or “deep upfront haircuts,” banker jargon for write-offs.
“The report is a great vindication for the Greek government,” Mr. Tsipras said in a statement. “It confirms the obvious — that the Greek debt is unsustainable.”
Mr. Tsipras has for years been demanding a European Debt Conference modeled on the London Debt Agreement of 1953 that wrote off about half the pre- and postwar debt taken on by West Germany.
Persuading creditors to accept losses has never been easy or free of a political component. The London conference negotiations dragged on for two years and involved representatives of public and private creditors from 26 countries.
But the United States, Berlin’s biggest public creditor, pushed through the deal, largely out of strategic concerns heightened by the Cold War.
The Greeks, by contrast, “are just not important or powerful enough to make everyone want to rescue them,” said Timothy W. Guinnane, a professor of economic history at Yale University who has studied the 1953 London negotiations.
The contentious negotiations this month that produced the framework agreement for the new bailout of Greece offered only a vague pledge to consider the possibility of “longer grace and payment periods” on the condition that Greece first meets its own commitments to tightly control spending. The same pledge has been on the table since November 2012.
GRAPHIC
Which Was Bigger: The Greek or American Bailout?
A comparison of the Greek and American bailouts and their economic impact.
The I.M.F.’s insistence on addressing the issue as part of the continuing bailout talks suggests that Greece will at least get a chance to make its case. But even as some central leaders suggest that there could be common ground for discussion, the fundamental divisions remain profound.
Chancellor Angela Merkel of Germany, who continues to rule out debt forgiveness, said on Sunday that Germany would entertain a discussion about steps such as lower interest rates and longer payment terms, but only after the bailout agreement is finalized and Greece passes a first assessment of its progress in carrying out the policy changes demanded by the creditors.
Christine Lagarde, the managing director of the I.M.F., told a French radio station last week that the new Greek bailout now taking shape is “categorically not” viable without debt relief. All the same, she has signaled that the fund will not insist on a debt write-off and wants talks soon about “debt relief on a scale that would need to go well beyond what has been under consideration to date,” as the July 14 I.M.F. report put it.
In the middle are a number of countries, like France, that have been intermediaries between Greece and the other European creditors and are open to new terms for Greece.
A big reason for the standoff is the nature of Greek debt. In many previous international negotiations — including those over money owed by Latin American countries during the region’s debt crisis in the 1980s and the €107 billion in debt that Greece got written off in 2012 — the creditors were mostly foreign banks and other investors.
MAP
Why the Greece Deal Matters
A visual guide to why a deal with Greece is so critical to Europe.
In this case, though, the Greek government’s debt is held mostly by other governments and government-backed institutions like the I.M.F.
When Germany and other eurozone nations fashioned their first bailout to Greece in 2010, they offered a package of bilateral loans, an approach that, according to Mr. Dallara, the American debt negotiator, “introduced an unusual level of politicization into debt negotiations.”
Tampering with this debt is impossible without approval from lawmakers in Germany and other countries, and any losses would be borne by taxpayers in those nations.
Latin America, Mr. Dallara said, would never have succeeded in renegotiating its debts in the 1980s if “we had had to put every move through various parliaments.”
“It would have been a nightmare,” he said.
Nearly 60 percent of Greece’s debt is held by fellow eurozone countries, which gave Greece a second bailout in 2012 and are now preparing to throw it a third lifeline worth a further €86 billion.
Germany’s contribution to the two initial bailouts was more than €50 billion, making Berlin the biggest contributor. But some experts believe that once German contributions to the European Central Bank and to other lenders are taken into account, Berlin is on the hook in Greece for upward of €100 billion.
“Things today are far too transparent for politicians to take tough decisions,” said Mr. Guinnane, the Yale professor, noting that a lack of close scrutiny from lawmakers and the news media in 1953 “gave politicians a lot of wiggle room” to accept terms that would cost their citizens and governments money.
Having abandoned his election promises to end austerity, Mr. Tsipras now desperately needs some progress on debt to shore up his divided Syriza party and also to convince both friends and enemies that, for all his government’s defeats and reversals, it has a plan that can secure results.
The only European leader to say openly what many fear is the president of tiny Latvia, Andris Berzins, who told a local television station, “Greece’s debt is so great that everyone understands — it will not pay.”
Comments