Greece debt talks may not solve economic woes

Greece is in talks with the International Monetary Fund this week to receive the first payments of the bailout agreed last summer – the third international bailout the country has received since 2010. The government says talks are in their “final phase” but also rejects creditors’ calls for further measures, suggesting the country’s economic battles are heading into yet another round.

Greek Prime Minister Alexis Tsipras takes questions in parliament. Reuters/Alkis Konstantinidis

With Europe’s migration crisis keeping Greece in the international spotlight since the start of the year, the country’s economic woes have fallen into the background.

Stathis Kouvelakis, reader in political theory at King's College

But nine months since the government of Prime Minister Alexis Tsipras bowed to the demands of creditors in a deal that split the ruling Syriza party into two, the conditions for receiving the new 86-billion-euro bailout are still being negotiated with the IMF in Athens this week.

“It was supposed to have ended in January or February,” says Vassalis Monastiriotis, associate professor of political economy at the European Institute of the London School of Economics. “It’s dragging on for too long, and there are substantial disagreements in some of the measures relating to pension cuts but also to some changes in the tax system.”

The government has been moving on these precise two issues, with Finance Minister Euclid Tsakalotos promising to unveil new bills on taxes and pensions this week, without waiting for creditors’ approval as stipulated in last summer’s deal.

But the move is not so much in defiance as in search for setting the stage for a compromise with the Eurogroup – the finance ministers of the 28 European Union member states – at a meeting planned on Friday.

“They would like to be in the leading position if these bills go through parliament, as it will be difficult for the creditors to ask for another bill immediately after this has gone through,” Monastiriotis says. “I think the bill will not go for a vote until there is further discussion with creditors, and at some point, some level of agreement, some solution will be found.”

IMF calling for new measures

The government is finding itself in the somewhat peculiar position of playing along with its European group of creditors while rejecting calls from those in the IMF, which wants Greece to agree to new restrictions if it fails to meet budget targets in 2018.

Government spokesperson Olga Gerovasili said this week that talks are in their “final phase” ahead of the Eurogroup meeting, adding the IMF’s calls for further modifications was holding them up.

“The negotiation with the lenders should have been concluded long ago, since the Greek government has submitted comprehensive proposals which meet its targets," Gerovasili said Tuesday.

Underlying this aspect is that the EU and the IMF have different expectations when it comes to the way Greece reforms its economy to meet the bailout conditions.

“The IMF does not consider itself to be committed to the July agreement and is asking additional measures of the Greek government before accepting its debt to be viable, and at the same time, the IMF is asking for a real restructuration of the Greek debt,” says economist Athanase Contargyris.

“So the IMF is using a different basis for calculation than the one that the European Commission is accepting as a basis for considering the terms of the agreement are met.”

‘An endless type of blackmail’

For the part of the ruling party alienated by last July’s deal, the fact that Greece has pulled through without the bailout money until now validates the argument that the country can survive on its tax revenue but will fold under the current conditions of its debt repayments.

“They have to pay back big sums to creditors this summer, and the tax revenues are certainly not enough to pay this,” says Stathis Kouvelakis, a reader in political theory at King’s College in London who left Syriza’s central committee over last summer’s deal.

“They will have to complete the review, as they say, which means to agree to the demands of the creditors in order to get that money,” he says, referring to the third bailout.

If the Tsipras government has been able to play for time until now, he argues, it will be a different story when faced with the inevitability of European Central Bank repayment deadlines in June.

“It’s just a succession of ultimatums and an endless type of blackmail,” Kouvelakis says. “The creditors know very well that Tsipras is just playing a game in order to appear as though he is resisting. But at the end, he will blink.”