[Marxism] Austerity Off-Ramp: Failed Europe Talks Steer Greeks Left
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Thu Jan 22 15:49:25 MST 2015
Wall Street Journal, Jan 22 2015
Austerity Off-Ramp: Failed Europe Talks Steer Greeks Left
Walker, MarcusView Profile; Kakaounaki, Marianna.
ATHENS -- Greek Prime Minister Antonis Samaras, under pressure at home
to end his country's financial bailout regimen, sought help last spring
from German Chancellor Angela Merkel about relieving some of Greece's debt.
Ms. Merkel asked an interpreter to translate the phrase "debt relief,"
according to people familiar with the meeting. Then she told Mr.
Samaras: "It doesn't sound as good in German."
The retort was an early sign Greece could expect little clemency from
its German-led creditors.
Greece, the eurozone's most troubled economy, remains tethered to an
unforgiving bailout machinery, built at Berlin's behest, that issues
financial aid in exchange for reforms and regular inspections.
The system's iron rules helped push the Greek government to snap
elections Sunday, with an outcome that could return the country to the
brink of exit from the euro. In polls, Mr. Samaras's ruling
conservatives trail the radical-left opposition party Syriza, which
promises to end the austerity Europe has imposed on Greece as the price
of rescue loans.
Syriza could find it even harder to swallow the market-oriented
overhauls that proved too much for Mr. Samaras's government. Unless it
agrees to overhauls, German officials say, Greece won't get the loans it
needs to avoid default by the summer.
Even if Mr. Samaras manages to win Sunday, the mounting conflicts
between Athens and its creditors show how hard it will be for any Greek
leader to satisfy Europe and the International Monetary Fund without
causing political convulsions at home.
Germany's stringent recipe for making the eurozone more frugal and
competitive is putting such pressure on weaker euro members that 2015
threatens to be a year of political upheaval. Across Europe's depressed
South, rising political upstarts such as Syriza and Spain's left-wing
Podemos party are challenging unpopular ruling establishments.
The renewed Greek drama illustrates how Europe's long economic malaise
is increasingly turning into a political and social crisis, eroding
public confidence in established parties -- and in the institutions of
the European Union -- while fueling the rise of populists of both left
This account of how Athens and its lenders brought a long-simmering
crisis back to a boil is based on interviews with 18 senior officials in
Greece, Europe and beyond. Many European officials said Greece was
guilty of hubris by trying to end creditors' control before fixing its
economy. But if Mr. Samaras loses Sunday's elections, Europe's rigid
machinery will have been his nemesis.
"We always tell the crisis countries to 'Stay the course,' " and
continue with painful policies if they want to stay in the euro, a
senior German official said. "But it's difficult for them. All we are
offering is the stick."
Mr. Samaras, a suave conservative who swings between statesmanship and
populism, used to rail against the tax increases and spending cuts
required under Greece's bailout memorandum with the eurozone and the IMF.
As opposition leader in 2011, Mr. Samaras said the agreement
"permanently suffocates the Greek economy." Rather than blaming the debt
crisis for the tough measures, he said: "It's the memorandum that has
bought us closer to bankruptcy."
But after winning election in June 2012, Mr. Samaras traveled to Berlin
to offer Ms. Merkel a mea culpa. He rehearsed his lines with aides for
six hours in the Berlin Hilton, then persuaded Ms. Merkel that he would
carry out the measures. She backed him, overruling others in Berlin --
including her finance minister, Wolfgang Schauble -- who wanted to boot
Greece out of the euro.
For nearly two years, Mr. Samaras implemented enough of the bailout
requirements to satisfy inspectors from the IMF, the European Commission
and the European Central Bank, a group nicknamed the troika. Every
positive report won Greece another slice of bailout money. The gaping
budget deficit shrank.
But so did Greece's economy. By early 2014, GDP was 27% smaller than
before the financial crisis. Unemployment had reached 28%. Households
and businesses had sunk into debt as incomes plunged. A debt crisis that
began with government had spread to the private sector. And although
recession finally ended, voters had had enough.
The government and European authorities trumpeted Greece's bond issue in
April, the first in four years. Greece had also achieved a small primary
surplus: tax revenues covered public spending, excluding debt interest.
But such progress rang hollow to Greeks who paid for it with higher
taxes and deep cuts to pay, pensions and health care. "To many ordinary
Greeks, the primary surplus means, 'I am poorer,' " said Nick
Malkoutzis, founder of MacroPolis.gr, a site of political and economic
analysis. "But the hope was that we had staggered over the finish line."
During European Parliament elections in May, Mr. Samaras faced a
younger, left-wing version of himself: Syriza leader Alexis Tsipras, who
blamed the crisis on austerity, not austerity on the crisis.
Mr. Samaras, meanwhile, told voters the pain was ending. "There will be
no new measures," he said at a rally in Athens. "No new measures" became
his mantra. But under the memorandum, Greece still had to boost its
primary surplus to a hefty 4.5% of GDP and hold it there for years.
Syriza came first in the European elections. Lawmakers from Mr.
Samaras's party, New Democracy, made it clear they were tired of passing
unpopular measures. The premier shuffled his cabinet, replacing
reformist ministers with populists who could take on Syriza.
Mr. Samaras's priority was to get out of the bailout straitjacket as
fast as possible, said people familiar with his thinking. His plan was
for Greece to refuse any more bailout loans after 2014, instead relying
on bond sales. He sought, at most, an overdraft facility from Europe to
assure bond investors.
European inspections would be minimized. The IMF -- the troika's
toughest enforcer -- would be sent home. Mr. Samaras hoped to declare
victory by late 2014. By building political momentum, he could win a
tricky vote in the Greek Parliament: The selection of a new Greek
president by a February 2015 deadline. The post is ceremonial, but
failure to fill it triggers general elections.
For Mr. Samaras's plan to work, Greece needed to first pass a major
troika review that would yield 7.2 billion euros ($8.3 billion) in aid.
The problem was a backlog of overhauls from past reviews, including
reforms to taxation, pensions, labor, banks, mortgages, unions, market
regulation and the public payroll.
Most officials in Greece's government wanted to dilute the changes and
push the most unpopular reforms into the future. Demands for pension
cuts and sales-tax increases, for example, were "political suicide," a
senior Greek official said.
All sides accepted that Greece couldn't complete all the requirements by
year-end. The troika met with Greek officials in Paris in early
September to find out how much Greece was willing to do.
During talks at a diplomat's villa, Greek ministers and aides to Mr.
Samaras were deliberately vague "because we were testing the water," a
Greek official said. A top Samaras aide demanded the IMF show respect
for Greece's fiscal improvement. "You can't treat us as if we're still
in boot camp," he said.
At night, top officials from both sides dined at a modest bistro near
the Arc de Triomphe, after first checking for Greek tourists. The troika
proposed more time for the review and extending the bailout into 2015.
But that would deny Athens the prize of liberating Greece from the
program by Christmas.
The Greeks replied that they wanted no more money from Europe or the IMF
after December, when the country would turn to bond markets. The troika
Back at the villa, European Commission negotiator Declan Costello ended
the Paris talks by reading aloud the list of overhauls Greece had
rejected. "It's impossible for us to accept your doing nothing on all of
these," he said.
Mr. Samaras then appealed to a higher power. On a Sept. 23 visit to the
German chancellery, he asked Ms. Merkel to understand that he couldn't
enact so many unpopular measures during 2014. If Europe pressed Greece
too hard, it would find itself dealing with a much less cooperative
Syriza government, he warned.
Difficult reforms could be postponed -- as so-called leftovers -- under
a gentler post-bailout agreement that would free Greece from the
shackles of the troika.
"We want to declare victory," Mr. Samaras told the chancellor. "It would
be a big success for Europe" if Greece, the hardest-hit crisis country,
could graduate from its bailout.
Ms. Merkel asked if bond markets were ready to fund Greece, according to
people present. If not, then Greece would need more than overdraft
protection from Europe. It would need another bailout.
Ms. Merkel said Greece's next phase would still require robust
inspections -- including the IMF. Otherwise, there was no guarantee that
Greece would continue with its overhaul. She urged the Greek premier to
complete the troika review.
The German side felt Greece was trying to have it both ways. Mr. Samaras
was seeking reform delays now -- and weak controls later. Berlin
suspected Athens was hoping the troika would let it off the hook. German
officials advised tackling tough reforms right away. Popular anger would
die down, they said.
A trip to Athens by the troika a week later made little headway on the
disputed reforms. When Greece's finance minister, Gikas Hardouvelis,
tried to schedule the next meeting, Mr. Costello, of the European
Commission, said, "Let's meet when you've made more progress on these
In October, Greece proposed a budget law that infuriated the troika. It
would allow many Greeks with tax debts to pay them off in 100 monthly
installments. The scheme's leniency risked undermining already weak
habits of paying taxes promptly, troika officials told Athens.
A plunge in Greek bond prices that month scuttled Greece's chances of
raising its own funds. The selloff partly reflected investor suspicions
that Greece's troika review was going badly, as well as fears the
government might fall over the presidential vote due by February.
With the troika refusing to return to Athens, officials met again in
Paris during November to try to break the deadlock. Greek officials, now
worried the review could fail, offered some concessions.
The IMF maintained its demands for tough labor and pension changes. The
IMF also wanted extra austerity measures to cover an anticipated budget
shortfall from sagging tax revenues.
Greek officials thought the IMF was being stubborn and overly
pessimistic. They became convinced the IMF was avoiding an agreement
that would pay Greece <euro>7.2 billion, as a hedge against Syriza
coming to power.
"You are pulling the rug from under this government," Chrysanthos
Lazaridis, a top aide to Mr. Samaras, told the IMF in Paris. The IMF
stays out of politics, was the reply.
The ECB, usually a quiet observer in troika talks, backed the IMF's view
that Greece was doing too little.
Even the European Commission, which showed more sympathy for the
political cost of reforms, felt Greece's concessions on taxes and
pensions fell short. The commission thought Greece offered enough to
justify another troika visit to Athens, but not enough to close the
review. The IMF, meanwhile, didn't think it was worth the trip.
On Nov. 30, the Greeks, increasingly nervous, emailed new concessions.
The proposals, which included higher sales taxes on the economically
important hotel sector, caused a public fury following news leaks.
The IMF wanted more. Germany, which had brought the IMF into Europe's
crisis to crack the whip, concluded that Athens didn't understand: There
would be no money for countries that didn't complete their homework.
Even the commission wasn't satisfied.
"At the end of the day, they had reached the limit of what they could
do," a Brussels-based official said. "And it wasn't really good enough."
Mr. Samaras had run out of time to attain the victories he had sought
before the Greek Parliament voted on the presidency.
In early December, Mr. Samaras and his closest aides decided the
government's survival now required a roll of the dice. They brought
forward the presidential ballot, and postponed a deal with the troika
Their gamble was that enough lawmakers would support the government's
nominee for president because, if not, snap elections might sink
incumbent lawmakers along with the country.
The gambit failed. Mr. Samaras couldn't mount an argument that drew
broad support. A government that had promised to end the bailout,
curtail the measures, expel the IMF, and alleviate the debt had returned
Eurozone finance officials now think Greece will need a longer bailout.
Sunday's election winner must bridge an even bigger gap.
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