Greece’s embattled government has three weeks to break the deadlock in increasingly difficult talks with creditors or risk the country’s debt crisis resurfacing with renewed vigour.
Faced with the dilemma of agreeing to additional austerity or calling fresh elections, prime minister Alexis Tsipras was weighing his options at the weekend. Fears of further uncertainty in Europe’s weakest member state mounted as the International Monetary Fund (IMF) predicted that Greece’s debt load could become “explosive” by 2030.
“It is critical that a compromise is found,” said Aristides Hatzis, professor of law and economics at the university of Athens, noting that a slew of elections across Europe would only make Greece’s predicament worse.
“If these negotiations are not wrapped up by 20 February [when eurozone finance ministers next meet] we could be looking at potentially disastrous political turmoil which would bring back the scenario of Grexit with a vengeance.”
Central to the impasse is the enduring argument among lenders over Athens’ ability to achieve fiscal targets once its latest bailout programme expires in 2018. Without legislation of further pension cuts and tax increases, the IMF does not believe it can attain a primary budget surplus of 3.5%. At a Euro Group meeting of euro area finance ministers on Thursday, Athens found itself out in the cold with even the normally supportive European Commission failing to rally to its defence.
Tsipras’ two-party coalition marked two years in office last week with the leftist leader declaring he was not prepared to take an “extra euro” in measures beyond those the country has committed to under its current €86bn bailout. Passage of some of the harshest cuts yet has seen the government’s popularity nosedive in polls. To ask for more measures when by dint of retrenchment Greece’s state revenues were better than expected was not only “extreme” but “absurd,” Tsipras’ office said.
The spat has delayed a second compliance review of reforms and economic progress that the government had hoped to complete by December. Conclusion of the review is vital to unlocking further loans from the bailout, the third since Athens revealed the extent of its financial woes in late 2009.
With €10.5bn in debt repayments lined up this summer, a rerun of the debt crisis looms if disbursements aren’t made.
Either way Greece’s economic future looks grim. In a devastating assessment that may well dominate the course of events, the IMF warned that even if reforms are religiously implemented — and agreed short–term debt relief imposed — Athens’ debt load is doomed to become “explosive.” “Greece cannot grow out of its debt problem,” the Washington-based body wrote in a confidential report leaked to the media last week. “Greece requires substantial debt relief from its European partners to restore debt sustainability.”
