Sadly, we’ve seen this movie before. The creditors have the means to crush Greece and have no compunctions about inflicting pain.
Greece had struck a deal with its creditors, which in this iteration includes the European Stability Mechanism (ESM). The agreement on December 5 included an interest rate reduction on the country’s over €300 billion of borrowings.
Three days later, prime minister Alex Tsipras announced that he would give a special Christmas bonus to the poorest pensioners, those receiving less than €800 a month, and would not put through a scheduled increase in the VAT for the outermost Greek islands that had been hard hit by dealing with migrants from the Middle East. The ESM reacted harshly, saying the debt relief agreement was off. From the BBC:
Earlier, eurozone lenders suspended their recently agreed short-term debt-relief plan for Greece.
They said they had not been asked to approve the bonuses plan.
The European Stability Mechanism (ESM), the body that helps eurozone governments in trouble, said it would now be scrutinising the proposed handout.
“Following recent proposals by the Greek government to spend additional fiscal resources for pensions and VAT, our governing bodies have put their decisions temporarily on hold,” a spokesman for the ESM said.
The Guardian gives Tsipras’ rationale for the extra, unapproved spending: he was ahead of targets and by his calculation, had extra cash in the till:
The prime minister, Alexis Tsipras, was taken by surprise on Wednesday when the European Stability Mechanism announced it would not honour an accord to ease the burden of Greece’s debt pile. The decision, taken in direct retribution for a series of surprise social welfare measures unveiled by the leader, is likely to put Athens on a war footing with lenders amid mounting signs of the Greek crisis flaring again…
The announcement followed a statement by the Euro group of finance ministers, representing members of the single currency, which also suggested that Athens had acted out of line. Earlier on Wednesday Germany – the single biggest contributor to the three bailouts Greece has received since 2010 – said the benefits were incompatible with programme targets…
Despite the outcry he has categorically refused to rescind the special pension supplement, saying the €617m required for the bonus will be drawn from the budget surplus his government has managed to achieve.
Visiting the northern city of Thessaloniki on Wednesday, he ratcheted up his anti-austerity rhetoric, announcing that Athens would spend €11.5m next year extending free meals to 30,000 underprivileged schoolchildren.
“This programme has been factored in to the budget of 2017,” he told local mayors, denying the aid would derail the programme of tough fiscal targets Greece has agreed to meet.
“I think everyone has to respect the Greek people, who for the last seven years have made huge sacrifices in the name of Europe. We have carried the weight of the refugee crisis. In the name of Europe we have, in recent years, implemented an extremely hard policy of austerity. There has to be respect from all.”
Greece has become an internment center for refugees. The implicit threat is that Greece would send them into the rest of Europe. I doubt that is easily done from Greek islands, but there are also detainment centers on the mainland, such as on the border of Macedonia.
Tsipras called for a Parliamentary vote Thursday to approve the special pensioner bonus in light of the ESM withdrawal of the debt relief agreement. One assumes he has the votes.
Tsipras will be meeting with Merkel on Friday and he is certain to pump for more relief in light of the migrant burden. From Associated Press. However, notice that Germany continues to insist that Greece wear the austerity hairshirt:
The German government says Greek Prime Minister Alexis Tsipras will travel to Berlin this week to discuss the migrant situation, Cyprus and Greece’s financial issues with German Chancellor Angela Merkel…
She said that major issues would include negotiations on the future of Cyprus; migrants and relations between the European Union and Greece’s eastern neighbor, Turkey; and “on the margins,” the financial and economic situation.
The International Monetary Fund has argued strongly in favor of big debt relief measures for Greece. Germany in particular has been hesitant to offer anything substantial until Greece has delivered on reforms demanded by its international creditors.
Tsipras has the moral high ground. But trying to shame the creditors hasn’t been a winning strategy. I hope thing work out better this time for the sake of the long-suffering citizens of Greece.