Greek Debt: Back In The Headlines

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Includes: GREK
by: AllAboutAlpha

Summary

In July 2015, the Greek government and its European creditors reached a bailout agreement. Some violence and an intra-party feud in Syriza followed, but the parliament did what it had to do to keep the creditors happy. The government re-opened the banks and the stock exchange.

On January 22, 2016, Standard & Poor's actually upgraded Greece's credit rating. S&P gave the country a pat on the back for "broadly complying" with the credit deal of the previous summer, and said its economy has proven "more resilient" than some had expected.

But Greece's credit-worthiness has now come back into the world's headlines from an unexpected direction in these opening days of April 2016: not from land or sea, but from cyberspace - from WikiLeaks.

On April 2, WikiLeaks published a transcript of an internal International Monetary Fund conference, in which the relevant IMF honchos discussed how that member of the notorious "troika" might wash its own hands of Greece and leave the execution of the bailout program to the EU.

The issue of Greece's insolvency had receded a bit from the headlines since the stormy days of last summer.

Alpha-savvy readers will surely recall, though, that in July 2015, the Greek government and its European creditors reached a bailout agreement that required actions by the former, especially on pensions and taxes. Some violence in the streets, an intra-party feud in Syriza, and the controversial release of information about a seceding-from-the-eurozone "Plan "B" all followed in quick succession, but the parliament did what it had to do to keep the creditors happy. The government re-opened the banks and the stock exchange. And since then, for the most part, the particulars of Greek finance have seemed relatively humdrum.

After all, the subsequent news from Greece has been quite different and even more humanly compelling. It has been the focal point of the refugee crisis as the Middle East - Syria in particular, or at least in the pole position - deteriorates. Greek islands, temptingly close to the coast of Asia Minor, constitute many emigres' dreamt-of escape to Europe.

An Upgrade and a Transcript

Meanwhile, on January 22, 2016, Standard & Poor's actually upgraded Greece's credit rating. S&P gave the country a pat on the back for "broadly complying" with the credit deal of the previous summer, and said its economy has proven "more resilient" than some had expected.

There have been efforts to connect the dots here, to relate the solvency and the refugee crises. But Greece's credit-worthiness has now come back into the world's headlines from an unexpected direction in these opening days of April 2016: not from land or sea, but from cyberspace - from WikiLeaks.

On April 2, WikiLeaks published a transcript of an internal International Monetary Fund (IMF) conference, in which the relevant IMF honchos discussed how that member of the notorious "troika" might wash its own hands of Greece and leave the execution of the bailout program to the EU.

Specifically, Poul Thomsen, head of the Fund's European Bureau, suggested that the IMF say to the chancellor of the Federal Republic of Germany, "Look, you Ms. Merkel, you face a question, you have to think about what is more costly: to go ahead without the IMF? Would the Bundestag say, 'The IMF is not on board?'"

The significance of that hypothetical question to be addressed to Merkel? IMF participation is an important political anchor for the program. Senior figures in the Bundestag have said that they would reject new eurozone loans to Greece without that participation. So, in essence, the IMF's discussions are about blackmailing European authorities into revising the terms of the bailout in the way the IMF wants, in order not to see the program lose its political viability altogether.

Thomsen is concerned that Greek debt will be back in the headlines eventually anyway, but that it is better to thrash out the debt reorganization now than wait until this summer.

"In the past there has been only one time when the decision has been made," says Thomsen, according to WikiLeaks, "and then that was when [the Greeks] were about to run out of money seriously and to default. And possibly this is what is going to happen again. In that case, it drags on until July."

The Problem with Waiting

The problem with waiting until July 2016 for the next showdown is that between now and then, there is a referendum in Britain about its own EU membership (June 23). Thomsen sees it as politically critical to keep the two subjects distinct, whereas that chronology will blur them.

This leak, understandably, has rattled the Greek government, even though the IMF is proposing to play hardball for something on which it and the government are agreed: Thomsen's idea is to get Merkel to agree to a reduction of Greece's debt, after all. Still, the response to this leak has been sharp. Prime Minister Alexis Tsipras fired off a letter to Christine Lagarde, the IMF's managing director, asking whether the comments in the transcript reflect "the official IMF view," and whether the idea is to use "a credit event to pressurize Greece and the other member states." If so, Tsipras added, this is "clearly beyond the bounds of the negotiation process as we understand it."

That too, somewhat differently expressed, is the view of Dimitrios Papadimoulis, a Syriza leader who has made his own displeasure known in a communication to the head of the European parliament.

These reactions, though humanly understandable, seem, in policy terms, quite off base. Thomsen was very clearly not saying that the IMF should wait until July and a default or other "credit event" and force changes in the program then. He was saying that as a matter of the existing track record, that is how the play usually goes. He wants a change of script; he wants the issues to be faced more quickly.

Greece's former finance minister Yanis Varoufakis has tweeted, somewhat more on point, that the leak demonstrates "an attrition war between a reasonably numerate villain (the IMF) and a chronic procrastinator (Berlin)." If one has to be cast as a villain, it is better to be the "numerate" villain than not. And the "villain" in this case is so because it is not the procrastinator. All the better for villainy.