Even though the talk of Grexit has receded from the headlines due to the Troika’s apparent success in reducing Greece to a vassal state, that operation is in fact not complete. Both unresolved elements of the seemingly permanent bailout negotiations, and a new set of confrontations created by the refugee crisis, means that the Greeks and their putative masters may be at loggerheads sooner rather than later.
As an article in Politico describes, Greece and its creditors are still at odds over a key point in the funding talks: that of Greece’s supposedly lavish pension system. What the European press has conveniently failed to report is that Greece lacks most elements of the sort of social safety nets that other European countries have, such as disability insurance, and the pensions have wound up serving as one-stop shopping. The IMF actually appeared to appreciate the point, since in the later stages of the seemingly endless negotiations of early 2015, the agency put forward a proposal that would require Greece to create some proper social support programs as it cut pensions.
Here is the current state of play, per Politico:
Greece’s creditors are heading to Athens this week to discuss Greece’s first review under the third bailout program.
As has been the case many times before in Greece, this review should already have been completed and the funds released.
The main sticking point is pension reform. The third bailout program calls for pension cost savings of 1 percent of GDP in 2016. The government has implemented measures achieving two thirds of that the target so far, leaving a gap of roughly €600 million.
Syriza’s plans to make up the gap include higher contributions from farmers and the self-employed, an unpopular proposal that has led to widespread protests across the country. Considering that, according to the Small Enterprises’ Institute, more than 50 percent of Greek households relied on pensions as their main source of income in 2015, it’s no wonder pension cuts are a particularly toxic issue in Greek politics.
The Syriza-led coalition has only a three-seat majority, so its hold on power is fragile. The creditors don’t appear to think they are much at risk if they break the current government. The new head of the center-right New Democracy party, Kyriakos Mitsotakis, is the presumed replacement for Alex Tsipras, and the lenders anticipate he’ll be more pliant. But how does this logic hold together if the reason for new elections is opposition to pension cuts? It’s not obvious how this favors the formation of a coalition that would be softer on this issue. Yet the reading in Politico is that the IMF, which earlier had made noises that it would either require the creditors to provide real debt relief to Greece or it would not participate in the upcoming round of rescues, has now relented in the face of creditor refusal to provide much relief. That means the IMF has returned to its traditional role of kneecap-breaker.
The new fault line that has opened up is over the flood of refugees into Europe, and a high proportion transit through Greece. Greece is being charged with failure to stop the influx. Again from the article:
The hard deadline for agreeing the first review and releasing funds for Greece is when Greece runs out of money and cannot afford a debt repayment. This will come in July, when Greece has over €3.5 billion in debt to roll over.
But by late July, Greece could be a fundamentally different country. The flow of refugees from the Middle East slowed from over 200,000 in October 2015 to over 50,000 in January 2016 but is likely to pick up again as the weather improves. Other EU countries have complained that Greece is not following the rules on setting up hotspots and registering refugees that come across the Aegean via raft from Turkey.
The German chancellor’s open-armed welcome to refugees arriving in Europe, over 1 million of whom came to Germany, was called into question by the mass sexual assault in Cologne on New Year’s Eve in which most of the suspects were asylum seekers. With her popularity dwindling and an upcoming general election in Germany in 2017, Merkel is looking for ways to stem the flow of refugees.
Rather than reintroducing Germany’s national borders, a more politically appealing option for Merkel would be to outsource border closures to Macedonia and Bulgaria, stranding a number of asylum seekers in Greece.
Redrawing the Schengen boundaries to exclude Greece would deal a major blow to the country’s relations with the EU. If Greece fails to fulfill its commitments to protect its borders and establish hotspots for refugees, goodwill among creditors to find agreement on the bailout negotiation in July will in short supply.
This is even more disingenuous than it seems. Greece has an insanely long coast and land borders in underpopulated areas. Please tell us when to expect the German Navy to assist Greece in repelling refugees.
The “hotspot” label is an astonishingly dishonest term for open air prison camps. You can imagine why Greece is not keen to become a gaoler unless it is compensated very well for taking on that nasty role. But per the discussion above, no such rewards appear to be planned. In fact, the Troika seems to think it has the whip hand and can force Greece into compliance.
It’s effectively being made the whipping boy for problems that are ultimately American but more immediately Turkish in origin. Turkey is refusing to stop the refugee flow in part because that would be work, but in part because that gives the government a very powerful bargaining chip with the Europeans and the US. But since Turkey is playing footsie with Russia too, persuading it to reduce the flow of migrants isn’t as high on the horse trading list as one would think it ought to be. But you can see the logic from the discussion above: the Eurocrats think it’s easier to get Greece to do their dirty work than cut a deal with Turkey, which even if Turkey complied, would probably only reduce rather than stop the problem.
As the article concludes:
And among Greeks, anti-EU sentiment is likely to grow as the country is forced to handle the brunt of a refugee crisis not of its own making and without sufficient financial and political support from the rest of Europe…
As Greece faces a financing crunch in July, it will also likely see the influx of refugees hit fever pitch. In the absence of a coherent and effective European migration policy before July, it’s hard to imagine Greece avoiding expulsion from Schengen — and with the new line for Europe drawn at Greece’s northern borders, Greece will be one step closer to being out of the European project.
Last summer, Schäuble suggested Greece take a temporary break from the eurozone, and relations between Germany and Greece have only deteriorated since. It is likely Schäuble will put his proposal back on the table this summer. Greece’s fate may ultimately be determined by how much solidarity there really is in Europe — in which case, the future looks grim.
Shorter: expect a hot and nasty summer.