Greece ramped up pressure on its creditors this week to deliver a policy package that renders its debt sustainable.
“The Greek government feels it has done its part of what it promised,” finance minister Euclid Tsakalotos told journalists in Athens on Monday. “We feel that the ball is very much on the side of our creditors and the IMF [International Monetary Fund]. There are no excuses for not getting this overall deal that the Greek economy so desperately needs to access the markets and be able to leave the programme as planned in the summer of 2018.”
The Syriza government was humiliated at the May 22 Eurogroup, four days after it passed $5bn in measures over and above the requirements of the programme it agreed to in July 2015. It had fully expected a deal at that Eurogroup meeting. The office of prime minister Alexis Tsipras had issued a statement on May 17 saying he had spoken with German Chancellor Angela Merkel. “The two leaders agreed that a solution [to the debt] is both necessary and feasible at the upcoming Eurogroup,” the statement said.
Greece’s creditors, the Eurozone and the IMF, have already agreed on short-term measures that allow the country to pay its debts until 2022. Tsakalotos says the government now wants them to “specify the medium-term debt with what would happen if Greece successfully left the programme in the summer of 2018… and finally to reaffirm the nature of the long-term measures considered as part of the contingency mechanism should also be specified.”
The IMF has said that Greece’s debt is not sustainable, and recommends extending its repayment period to about 2080. Germany and some other Eurozone members say there will be no debt deal until Greece successfully completes its programme in August next year.
Tsakalotos says the measures could take effect then, but should be agreed now, “so an investor knows a the structure of gr debt, knows the likelihood of Greece being able to pay back its debt, and therefore can invest with increased certainty.” Greece’s economy was forecast to grow by 2.7 percent this year. Figures released by Elstat on Friday showed growth of just 0.4 percent for the first quarter.
Tsakalotos said the Eurogroup had agreed that Greece had passed its second review and was prepared to continue disbursements of its loan. That removes the possibility of a default next month, when Greece must pay the European Central Bank €7bn. But, he said, the meeting debated debt measures for five hours fruitlessly, making it impossible to issue a joint statement.
“There was one line in the Eurogroup statement that made it impossible for us to accept. That line said, ‘We the Eurogroup understand that the above measures on debt are not enough for the IMF to consider the debt sustainable.’ That statement essentially is a signal to markets – ‘don’t invest in Greece’.”
He refused to say whether Greece would abandon its adjustment programme if it does not receive satisfaction on the 15th. “I don’t think any player wants us to go to that situation… they understand after the 22nd of May that what was on the table was not a solution,” he said
“How can the European partners, the IMF, defend a position where Greece does its part of the bargain, and we say that ‘we’re not going to provide the clarity that the Greek government wants, the financial community wants, to be able to return Greece to growth’?” he said.
Tsakalotos said the root of the disagreement was that the IMF and Germany could not agree on how Greece’s growth and tax revenues would evolve after 2018. German finance minister Wolfgang Schaeuble confirmed this in an interview with Handelsblatt on Wednesday. “We’re arguing with the IMF about what is the right growth assumption for Greece for the next 40 to 50 years,” he said. The IMF is reportedly forecasting 1 percent growth for Greece over 40 years.
He was quoted by Greek Reporter as saying, “We disagree with the IMF about what it predicts for growth in Greece in the next 40 to 50 years. The Fund is not ready to forecast growth of more than 1% over the next 40 years… With 1% growth, Greece would not be able to close the gap with the other members of the eurozone. That is why all the country’s adjustment programs are in vain.”
Greece has received support from northern European officials since the May 22 Eurogroup. European Central Bank board member Bernard Couere supported Greece’s quest for a rapid solution on Tuesday, saying that an agreement ought to be reached at the June 15 Eurogroup. Last week Germany’s foreign minister, Sigmar Gabriel, declared that it was time to make good on promises of debt relief to Greece. As a Social Democrat, he was upholding his party’s anti-austerity line against the Christian Democrats ahead of a September election (the two parties are coalition allies but election adversaries). But other European officials told Bloomberg on Thursday that a deal this month was unlikely.