Artificial uncertainty. I am still convinced that the “artificial” uncertainties on keeping Greece in the eurozone have really only one objective - ensuring the necessary time to prepare the country's exit as well as possible, for it is a complex manoeuvre. We need to create the appropriate conditions so that it happens in an acceptable way, without repercussions that are too negative for Greece itself and the whole of the eurozone, and without excessive losses for the creditors and operators. We must wait for autumn, pretending in the meantime to believe that the situation might be recovered, and then choose the right moment. The reasons for my conviction and the symptoms which justify it can be summed up in four points:
Greece is not capable of turning things around or respecting the commitments it has taken on;
Several eurozone countries have indicated, pretty explicitly, that they don't intend to commit additional large sums for the bailout, and the German minister of the economy has said that the drawbacks of the Greek exit from the euro are not as worrying as they are made out to be;
The IMF will not be able to prolong any further the deadlines that have been set for its participation in the funding;
The relevant Community organisations are already implementing or preparing the funding and other support for Greece as a member of the EU (and it will remain a member of the EU anyway, even if a number of politicians and commentators ignore this or pretend to ignore it)
Each of these four points requires a few explanations and reminders.
Greece is not capable of respecting its commitments. I am not going to repeat how, over the years, Greece has not managed to achieve the reforms it had announced and that, in several domains, it has rather aggravated its situation (for example with regard to the number of civil servants and public agents). It is an exercise that this column has often commented on beforehand - in EUROPE 10637, this column warned against the excessive optimism which followed the national vote in mid-June; in EUROPE 10639, this column stressed that billions of euro are “swallowed up by bad management, by colossal delays in reforms and still more by international speculation”; in EUROPE 10641, this column had anticipated that Greece “is not and will not be capable of respecting the conditions that it had undertaken”, while stressing that the countries of the eurozone have the duty to “help Greece in every way possible”; but not to keep it in the eurozone at all costs, which would be a “rhetorical, ineffective and ruinous” way “for the eurozone”, while the return to the situation of a member state outside the eurozone “will be positive for Greece itself”.
Subsequent developments confirm these analyses. It is true that Athens has taken a few steps in the right direction and that there have been some decisions which are theoretically positive, but in reality nothing has worked as it was planned. The civil service should have been cut by 150,000 but in fact it has continue to swell; certain public activities should have disappeared and numerous privatisations were programmed, but the results are minimal. Nothing corresponds to what had been planned. The government is asking for at least another year to put into practice what had been decided, but no one believes in changes which would be accomplished in just a few months. And another year to accomplish the programme that has been planned would cost those providing the funds between €20-25 billion…
It would not be fair to attribute the responsibility of what happens only to Greece. It is the decision itself of letting Greece join the eurozone which was wrong, or at least premature. The mistake was shared at the beginning by all the countries of the euro and the Community institutions.
Germany has spoken clearly (and it is not alone). The German authorities are not the only ones to express their conviction that Greece will not respect its commitments. They have said in particular that Greece's exit will have no dramatic consequences.
EUROPE has previously referred to the explicit position taken by Philip Rosler, the German vice chancellor and minister of the economy, and a few extra details might now be helpful. He said that he has recently come to the conclusion that the Greek exit from the euro would not constitute “a terrifying nightmare” and will not be a tragedy. If in September the troika (European Commission, IMF and European Central Bank), which has voluntarily extended its stay in Athens for the analysis, confirms that Greece is not respecting its commitments, the funding will be suspended. According to Mr Rosler, Athens could itself decide to withdraw from the euro, and he added that countries not achieving the agreed reforms must accept the consequences of their behaviour.
The German minister of finance, Wolfgang Schäuble, has expressed a similar opinion - Athens is not doing what is necessary to respect its short-term commitments, and Greece will never be able to respect the objective of reducing its public debt to 120% of Greek GDP before 2020. The additional load needed to finance this delay is difficult to calculate, but it is between €10-50 billion. It is not only Germany, but also other eurozone countries, that would not accept such additional costs.
In particular, the Netherlands and Finland are laying down the condition that it must be the IMF which takes charge of any additional financing. As for the mood and intentions of the IMF, read on.
The IMF will not take on any further commitments. The International Monetary Fund has been part of the troika since the beginning (with the European Commission and ECB) which negotiates the conditions of financial support with Greece, monitors compliance and shares in the financing.
But the IMF has become much more prudent and reticent. Its spokesperson, Gerry Rice, pointed out on 12 July the Greek delays and gaps in respecting the commitments they had undertaken and he ruled the IMF's negotiating with Greece amendments to what had been agreed. The only thing he agrees to is the possibility of discussing how to “better fulfil” the objectives of the existing programme (see EUROPE 10655).
Christine Lagarde is less explicit in her recent statements, but no one has forgotten her previous position which in practice affirmed that the priority of the IMF lies in providing financing to poor countries and developing countries (the implication being that this does not mean the countries of the eurozone). This remark followed internal discussions in the IMF - the American, Chinese, Indian, Brazilian and other emerging country members on the board of the organisation together hold the majority and they had asked to change the rules of management of the IMF and to put conditions on the purchase of treasury bonds belonging to the developed regions.
Mrs Lagarde then confirmed that she would participate in September in meetings of the troika with the Greek authorities, though excluding from these meetings changes to the memorandum signed by Greece.
According to the weekly publication, Der Spiegel, the IMF has clearly informed the European Commission that the IMF would not take part in further aid to Greece. The commissioner for the euro, Olli Rehn, did not deny this information, simply giving the usual “no comment”.
Relaunch of Greece as a member of the EU. Do we need to repeat yet again that Greece will remain a member of the EU anyway and those who speak of its “being expelled from Europe” or of its “abandonment by Europe” are ignorant or lying? In fact, intensive activity is underway, in the Community and elsewhere, to prepare for what will happen after Greece leaves the euro, with analyses and plans on the perspectives of economic recovery for Greece. The outlook is favourable and there are considerable possibilities for relaunching the traditional economy of the country and creating new activities, if the Greek people respond positively to the new future which it will be able to design.
This column will come back to these aspects in detail because the case of Greece could become symbolic for the whole EU, bringing a solution to one of the causes of the difficulties of the euro, the Greek adventures having represented the first case of deviation in the management of the single currency. It is a lesson from which the EU must draw as many lessons as possible, beyond the facile demagoguery which often continues to be heard.
(FR/transl.fl)