We said as soon as Syriza was voted into office, in How Much Success is Syriza Likely to Have in Ending Austerity? that it was unlikely to prevail:
I see three stumbling blocks for the Greek negotiating position. The first is that there seems to be no overlap between what they want and the northern bloc is likely to be willing to concede….
Second is that the best idea that the Greeks have to square the circle of austerity v. the Greeks wanting a more pro-growth, more humanitarian solution, the so-called Modest Proposal, is not modest at all from the Eurozone perspective. While it is “modest” in that it works within the existing Eurozone institutional frameworks, it is such a radical departure from the negotiating terms that the Troika generally has on the table in these discussions that there is simply no way to get agreement by summer…even if the Troika had an unexpected change of heart and was willing to be far more innovative on the policy front, as opposed to the financial smoke and mirrors front….
Aside from the fact that this plan has too many moving parts to get done in an at best six month runway there is a third, deeper reason it won’t happen. The Germans do not want deeper integration and more cedeing of power to Eurozone/European level institutions. From their perspective, they are footing the bill of their neighbors, and they therefore want to maintain a position which gives them leverage. Of course, Germany is perversely in denial of the fact that it wants contradictory things, namely, to keep running large and sustained trade surpluses within the Eurozone, and not finance its trade partners. Nevertheless, the very assumption that Galbraith set forth on behalf of Syriza, that Syriza is pro the Eurozone project working, and to them that means deeper integration, is not what Germany wants since that would require it to give up its advantaged position.
As Syriza spoke more about its vision and plans, it confirmed our initial reading, that there was no overlap between its bargaining position and that of its creditors. When that is the case in business negotiations, the talks go a few rounds and either cease due to understandable failure to make progress (or the discovery in ones mainly about price that the bid and offer ranges don’t overlap at all) or end in a huff as both sides become disenchanted with each other. In international negotiations, there is more pressure to reach any kind of a deal, even if just a face-saving, empty statement. But when talks do fail, it’s often like the Doha trade round: the parties have lots of tries, make one last push to see if they can resolve differences, and then give up with a sense of defeat and exhaustion.
Today, an important date came and went. Friday was a Eurogroup meeting. There had been a dim hope that Greece and the Troika would make enough progress and have had agreed or largely agreed on the structural reforms that the Eurogroup could conceivably have approved the release of the so-called bailout funds. But instead, the regularly scheduled meeting took place with a deal on the structural reforms still looking remote. As a fallback, the Eurogroup wanted to hear about what progress Greece had made, presumably with a goal of reaching an agreement by the next Eurogroup meeting on May 11 (note that this will be after Greece has two more IMF payments to make, and it’s already under great stress to find the funds). The conversation got ugly, as if the other ministers wanted to pick up Varoufakis by his lapels and shake him. It reads like a divorce, when partners keep having to deal with each other when they’ve decided emotionally that they are done with each other.
Mind you, the Eurogroup is not necessarily the final arbiter; Tsipras has pinned his hopes on Merkel being committed to not having the Eurozone break up and having enough clout to force the others to heel. But any of the Eurozone members could stymie a deal around the bailout; it takes the approval of all members to release the monies. And the IMF and the ECB are not happy with Greece either.
Here is a sample of media reports. From the Guardian:
Eurozone finance ministers have blasted Greece for failing to make more progress towards a bailout deal, at an acrimonious eurogroup meeting in Riga today.
Ministers laid into Greek finance minister Yanis Varoufakis for not having reached agreement with creditors, two months after being given a four month extension to Greece’s loan programme…
Dijsselbloem also warned that it is very hard to consider a new programme for Greece to cover its funding needs beyond June, given the lack of progress recently. And he ruled out giving Greece a slice of the €7.2bn bailout cash that is being held back until reforms are agreed.
ECB president Mario Draghi also showed exasperation over the slow pace, and warned that the ECB could potentially impose tougher conditions in return for keeping Greek banks afloat.
From Jeff Black at Bloomberg:
— Jeff Black (@Jeffrey_Black) April 24, 2015
Additional detail from a later Bloomberg report:
Euro-area finance ministers hurled abuse at Greek Finance Minister Yanis Varoufakis behind closed doors as they shut down his bid to find a shortcut to releasing financial aid….
The 19-nation bloc’s finance ministers were riled after Greek Prime Minister Alexis Tsipras tried to bypass their veto on financial aid with an appeal to Angela Merkel on Thursday. Tsipras sought to circumvent the finance ministers’ authority, pleading his case with the German Chancellor and French President Francois Hollande on the sidelines of a summit on immigration in Brussels.
Under euro-area procedures, it’s the finance ministers who have to sign off on any aid disbursement and Merkel said last month she’s not prepared to override those controls.
“I would describe today’s meeting as a complete breakdown in communication with Greece,” Maltese Finance Minister Edward Scicluna said.
We’ve noted before that the Greek government has repeatedly tried to circumvent the process it agreed to in the February memorandum with the Eurogroup: of having its structural reforms approved by the Troika, with the Eurogroup next having to approve before the bailout money would be released. Greece tried sidestepping the process by going directly to the Eurogroup, of trying to deal mainly with the more Greece-friendly European Commission, and by appealing to Merkel. Greece appears to have tried the end-run gambit one too many times.
The video that was included in the Bloomberg story pointed out that Yanis Varoufakis apparently attended a different meeting than everyone else did. He said that things went well, that they were making progress.
Months of mounting tensions between Greece and its creditors boiled over at a high-level EU meeting on Friday with eurozone finance ministers angrily accusing their Greek counterpart of backtracking on commitments and failing to grasp the deep differences that still divide them.
Athens is running desperately short of cash and many eurozone officials fear that, without an agreement to release some of the remaining €7.2bn in its bailout programme, the government could default as early as mid-May…
The contentious session undermined claims by Greek officials that a Thursday meeting in Brussels between Alexis Tsipras, the Greek prime minister, and Angela Merkel, his German counterpart, had narrowed the differences. The claims briefly sent the euro rallying in morning trading, but those gains evaporated after news of the differences emerged….
“This game of chicken is turning into Angry Birds,” said one official from a eurozone country.
Mr Dijsselbloem said the stand-off had reached a point that the negotiating process needed to be overhauled. Officials briefed on the private talks said Mr Dijsselbloem specifically requested a return to more in-depth evaluations by Athens-based bailout monitors — something staunchly resisted by the new Greek government…
While Mr Varoufakis said the government was “utterly undogmatic” about how to speed up talks, he made clear a return to intrusive inspections by the so-called “troika”, as the bailout monitors were formerly known, was unacceptable.
“The notion that everything would be resolved more quickly if we went back to the troika visits of yesteryear … from our perspective is simply groundless,” he said.
Greek officials have expressed hope that a portion of the €7.2bn in aid could be quickly disbursed to meet immediate needs, or that the current talks could be merged into a larger, third bailout. This could take Athens through the summer, when the largest debt payments come due.
But Mr Dijsselbloem ruled out both possibilities, saying that if the parties could not address the differences at hand, other issues could not be broached. “It’s very hard to talk about the future if you cannot agree on a period of four months,” he said…
Officials briefed on the talks said some of the most testy exchanges came over how much progress had been made in negotiations to release the funds. Mr Varoufakis in his opening remarks told his counterparts that he believed a deal could be reached quickly, suggesting a conference call could be held soon to agree an aid disbursement.
But other ministers expressed incredulity at the claims, with some suggesting a deal might not be achieved before the bailout expires in June. Mr Dijsselbloem suggested next month’s meeting of finance ministers, scheduled for May 11, would only “take stock” of the situation rather than serve as a chance to reach a deal.
It is hard to see how Greece squeaks through and makes its two early May debt payments to the IMF. A default may be imminent.
I have not verified it independently but a comment on the Spiegel article (search for “spookk3) said that many local officials were deeply upset that the national government was demanding that they make their funds be deposited at the Greek central bank so the national government could borrow them to make debt payments:
Today’s papers in Greece report that the Tsipras government has received a grand total of 430 million or so in “confiscated” money from local governments to fill the state’s till. Huge sum indeed. Given that the IMF is to receive 750 million on May 7 or thereabouts. Plus a few billion due here and there. A bunch of mayors and other local office holders are going to demonstrate in Athens,refusing to hand over their money to the state unless they receive guarantees that it will be paid back.
Greece has engaged in a game of brinksmanship for months, but it looks as if the wheels are about to come off. It’s too easy to second-guess outcomes, but cooler heads had suggested that if a Grexit looked to be inevitable, the Eurozone could take measures to ameliorate the pain. The relations between the two sides are so sour that this sort of conscience-assuaging sop seems inconceivable, unless Merkel insists on it as a statesman-like gesture.
Greece was almost certain to continue to face harsh times, but the likely outcome looks to be particularly difficult. I wish the long-suffering Greek people the best of luck. They need it.