Some observers thought that Greece might get a break in the G-7 summit this weekend. The assumption that the US would be worried that a default and possible Grexit would lead to much greater Russian influence on a strategically-located country, and the US would thus push the Troika to make more concessions to Greece.
That dream has failed to materialize. While the G-7 has one more day to run, the statements coming out of it already signal that the assembled nations (U.S., Canada, Germany, France, Japan, Italy and the U.K) are backing the creditor position. This should come as no surprise. The Obama administration changed its position in February from pushing the lenders to come up with more pro-growth policies (meaning give relief to Greece) to stressing that Greece needed to “find a constructive path forward in partnership with Europe and the IMF to build on the foundation that exists.” That was code for “The structural reforms are in place and you need to work from them.”
The Obama administration has again come down on the side of pressing Greece to implement structural reforms, and depicts this as a view shared by all G-7 participants. From Bloomberg:
U.S. President Barack Obama put concerns over the deadlock onto the agenda of a G-7 summit hosted by Chancellor Angela Merkel in southern Germany on Sunday. Canadian Prime Minister Stephen Harper “emphasized the importance of addressing the Greek debt crisis,” according to a statement released by his office after a working session on the world economy.
“There was unanimity of opinion in the room that it was important for Greece and their partners to chart a way forward that builds on crucial structural reforms” and returns to growth, White House spokesman Josh Earnest told reporters.
The Tsipras speech to the Greek parliament last Friday has also thrown off what little momentum the negotiations had developed. From the Financial Times:
Jean-Claude Juncker, European Commission president, strongly rebuked Alexis Tsipras for his strident dismissal of a new bailout offer from Greece’s creditors and suggested the prime minister had misled his MPs about the nature of the closed-door negotiations…
“I don’t have a personal problem with Alexis Tsipras; quite to the contrary,” Mr Juncker said…“He was my friend, he is my friend. But frankly, in order to maintain it, he has to observe some minimal rules.”…
Mr Juncker also said he had been promised a new counterproposal from Mr Tsipras since the pair met in Brussels on Wednesday and did not want to renew talks until he had received the plan.
Eurozone officials have suggested talks involving Mr Juncker and Mr Tsipras, which could also include Angela Merkel, German chancellor, and François Hollande, French president, may resume on Wednesday, when all four are due in Brussels for a summit with Latin American leaders.
But Mr Juncker said he was cautious about such a timetable if Athens did not present a new way forward.
“I would be surprised if I didn’t have any further discussions with Mr Tsipras, but I would like to have the Greek proposal,” Mr Juncker said. “I would like to have time to study it in detail.”
Mr Juncker’s refusal to renew talks with Athens returns the bailout negotiations to a position of stalemate that he and the leaders of Greece’s two other bailout monitors — the International Monetary Fund and the European Central Bank — thought they had broken through just a week ago.
The New York Times added a few tidbits:
World leaders on Sunday increased the pressure on Europe to resolve the crisis over Greek debt, hours after one of the chief European negotiators expressed exasperation with the way the Greek leader was handling the talks…
Mr. Juncker said he wanted Greece to remain in the euro currency zone but could not “pull a rabbit out of the hat.”…
Mr. Juncker said testily that he was still waiting for Greek proposals to counter an offer rejected by Mr. Tsipras last week…
After Mr. Juncker’s tart remarks and a reminder from Martin Schulz, the German who heads the European Parliament, that an agreement was needed, Greek officials reiterated that there was still no acceptable solution on the table.
Similarly, Merkel effectively contradicted Tsipras’ claim in a speech to the Greek Parliament last Friday that a deal was near. From Bloomberg:
“All of us were of the opinion that a whole lot of work still lies ahead,” Merkel said in an interview from the summit at Schloss Elmau broadcast on ARD television. “We want to make every possible effort, but we aren’t there yet.”
And there was a clear message that Greece needs to relent on its refusal to “reform” pensions. Again from Bloomberg:
Underscoring the pressure on Greece to commit to reforms undertaken elsewhere, Italian Prime Minister Matteo Renzi said it was “unthinkable” that Italians should help pay for a Greek pensions system more generous than their own.
“In other words, the Tsipras government also needs to pass the reforms: reform of the pension system, reforms to stop tax evasion, reform of the tax system,” Renzi told reporters at Schloss Elmau. “There is full agreement at the G-7 that everything must be done in order to avoid Greece exiting the euro, but also that Greek citizens, actually the Greek government, must be the first to send a signal.”
The Financial Times reports that a French official said the lenders are willing to throw Greece some bones on the pension front, by allowing Greece to maintain pensions for poorer retirees. However, the government would need to come up with €800 million more in spending reductions to make up for the budget shortfall that would result.*
Note also that neither Renzi nor Merkel sound anywhere near as eager as Obama’s spokesman did about the need to get a deal done.
As we’ve said for months, there is no solution space on the issue of pensions. This has become an enormously visible issue in the Eurozone lender countries, and their leaders would have to spend an a considerable amount of political capital to support the Greek position, even if they were willing to do that. And in the countries where parliamentary approval is required to release bailout funds, it’s not clear the ruling coalitions could muster the votes, particularly given the late date. There’s not enough time to do the weeks of messaging needed to soften opinion.
Having said that, I’d like to know how anyone pushes Greece absent giving bribes (aka relenting) given that Tsipras has deeply committed himself to his position between his Le Monde op ed and his speech last Friday, plus by being boxed in by the Left Platform. If Tsipras tries snap elections, the Left Platform MPs have threatened to bolt and form a new party. Tsipras would need them to form a new coalition. The new party would have more freedom of action and visibility outside Syriza.
Moreover, Tsipras can create an easy excuse for a default by calling elections, either snap elections or more likely a referendum. He could argue, as he has weakly threatened before, that at such an important juncture he can proceed only in accordance with voter wishes. Given the normal minimum times for elections, everything would still be in play by June 30, the IMF default date.
In other words, huffing at Greece isn’t going to work any more than Greece huffing at the creditors has, unless the problem is that Greece still believed, despite plenty of evidence to the contrary, that the US and/or the UK would pressure the creditors to relent (Cameron has made very unhappy noises about Grexit risks).
Now Greece may believe that, push come to shove, the creditors will extend the bailout beyond its expiration date of June 30. That means all Eurozone lender nations need to consent, and in some nations, including Germany, parliamentary approval is required. That means arm-twisting would need to start as soon as possible, since voters aren’t keen about giving Greece any breaks. And to make this even more difficult to achieve, the German Bundestag has a recess the week of June 22.
Moreover, no deal by June 30, even with an extension of the bailout, means an IMF default, although an IMF default is not a bright white line like a private sector default (again, this is all murky due to the lack of precedents, but it appears that Lagarde does not report the default to the IMF board for 30 days, and certain consequences kick in only then). If Greece is still negotiating, the creditors might be able to fudge loss recognition.
But the banking system run will accelerate (bank withdrawals were €700 million on Friday, a level guaranteed to alarm the ECB). Given how long the impasse has gone on, the hardening positions of both sides, Tsipras perversely poisoning relationships with the few allies he as on the creditors side, and the ECB’s position becoming even more uncomfortable, it’s not clear than anything would be gained even if all 18 nations that would need to approve a bailout extension could be persuaded to go along.
So the message is clear: Greece needs to show some real movement in its position in order for the bailout funds to be released. It’s hard to see how that happens.
* Note that the New York Times has a broader statement, and from Juncker, which would seem to give it more clout: “In fact, Mr. Juncker said, he had stressed that a cut in pensions could be negotiable if Greece offered alternative savings.” However, given the firm statement from Renzi that Italian voters could not be expected to support Greece having more generous pensions than they do, it seems pretty clear that Greece is still expected to make substantial reductions in pensions.