Greece deal avoids another summer debt crisis

Greece accused of 'caving in' to more austerity

21 February

Alexis Tsipras's leftist coalition administration in Greece has been accused of "caving in" to demands for more austerity as the country's economy shrinks, says The Guardian.

Opposition parties have reacted badly to news that eurozone creditors are returning to Athens "to seek changes to the country's tax, pensions and labour market laws" in what is being presented as a breakthrough in debt talks.

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Greece previously said it would not make even an extra euro of cuts beyond the controversial reforms to pensions and taxes already passed last year.

Economists say the country will fall short of its 3.5 per cent budget surplus target for 2018 and that its near-€230bn debt pile remains unsustainable. This had led to a stand-off with creditors who have refused to release the latest tranche of bailout funds.

The return of creditors to Greece follows an informal agreement that focuses on finding more palatable ways to reform the Greek economy beyond 2018.

Jeroen Dijsselbloem, the Dutch finance minister who chairs the group of eurozone finance ministers, said: "There will be a change in the policy mix … moving, perhaps, away from austerity and putting more emphasis on deep reforms.”

Dimitris Tzanakopoulos, a government spokesman, said that where revenue-raising measures were imposed, others would be cut.

He told the Daily Telegraph: "The agreement includes the inviolable condition that was set by the Greek side for not even one euro more of austerity."

The fact that further reforms are even happening – and happening before any relief on the value of Greece's debts – has prompted anger.

"The government is celebrating the return of the institutions to Greece while the economy is sinking," said the centre-right New Democracy party, the main opposition in parliament.

"Whatever the government says about reforms without fiscal cost and counter measures, [this] is just another attempt at deceiving people, only this time it can't persuade anyone," said the communist KKE party.

Dijsselbloem told reporters the deal did not mean new bailout funds would be released soon.

"There is still a lot of work to do, a lot of issues to discuss and calibrate so I want to temper expectations," he said. "There is no need for a disbursement in March, April or May."

Greece refuses further cuts as economy unexpectedly sinks

15 February

Greece's stand-off with its European creditors has "escalated", says The Guardian.

"Alexis Tsipras's leftist-led coalition government said it would not consent to additional austerity beyond the cuts the country had already agreed to administer under its third EU-led bailout programme" signed last year, says the paper.

Tsipras's closest confidant, digital policy minister Nikos Pappas, said in a TV interview that Greece had passed all the measures demanded under the deal.

He added that "ongoing differences between the EU and International Monetary Fund [IMF] over how to put the debt-stricken state back on the road to recovery were squarely to blame for the failure to conclude a compliance review at the heart of the stand-off".

The interventions come as farmers protested in Athens at cuts and tax relief reforms already passed into law. New data also shows the economy unexpectedly contracted at the end of last year.

After posting a surprisingly rapid expansion of 0.9 per cent in the third quarter, Greece's economy shrunk by 0.4 per cent in the three months to the end of last December.

Last month, it emerged that the IMF's own board is divided over how to move forward on Greece.

A number of its economists believe the country has done enough to meet the terms of its bailout and that creditors need to offer more substantial debt relief, something widely seen as impossible this side of Germany's elections in the autumn.

Other IMF analysts say Athens needs to agree to more austerity measures, including tax rises and pension cuts, if it is to hit a target of a budget surplus of 3.5 per cent by 2018. Greece is currently projected to generate a surplus of 1.5 per cent.

Without IMF involvement, Germany and other EU members have threatened to abandon the deal.

Christine Lagarde, IMF's managing director, said this week: "We have been asked to help but can only help at terms and conditions that are even-handed… We cannot cut a special sweet deal for a particular country."

There is little hope of a new agreement before European finance ministers meet next week. Failure to reach a deal this month could push negotiations back beyond the French election in the spring.

By July, Greece must repay another €7bn (£5.61bn) bond, which it will be unable to do without fresh bailout funds. For now, the stand-off goes on.

IMF split on Greece raises risk of bailout collapse

7 February

A "rare" public split among directors of the International Monetary Fund (IMF) means that the latest bailout deal for Greece could fall apart, according to the Financial Times.

Already Athens is at loggerheads with its creditors over its budget projections, amid claims it will fail to meet targets for a 3.5 per cent surplus on spending by 2018.

Failure to reach agreement at a meeting of eurozone finance ministers this month could push the discussions back to May, just after the French presidential election. This would be perilously close to the due date of another round of debt repayments.

But today the IMF admitted it, too, is doubtful and that its directors are in discord over the surplus targets.

In a statement that follows the publication of a leaked report, the fund said that "most" directors believe Greece is doing all it can to hold up its end of the bargain – but that it will still only achieve a surplus of 1.5 per cent in two years.

As such, "most" directors believe more needs to be done to cut Greece's debt pile, something that is anathema to its European creditors ahead of French and German elections.

"Some" directors believe Greece needs to go further to ensure it meets the 3.5 per cent target currently set out in the deal. This means more austerity, which is anathema to a Greek government that is languishing in the polls after the cutbacks it has already made.

The IMF admitted on Monday that Greece had made "significant progress" since the onset of the crisis in late 2009, although "extensive fiscal consolidation and internal devaluation have come at a high cost to society".

If the fund cannot reach agreement there's a possibility it will abandon the bailout deal, as IMF rules provide a get-out clause if it classifies Greek debt as "unsustainable".

That alone could be enough to scupper the deal as Germany and others have made IMF participation a key condition of their financial support.

Given the scale of the borrowing, which amounts to hundreds of billions of euros, Tim Worstall says on Forbes.com that "it's the IMF that has the Greek debt problem" – and its decision could wreak havoc on the process.

"Does it do some good economics and insist upon a capital haircut?" he asks. "Or does it neuter itself and go along with preserving the euro?"

Three weeks to avoid 'Grexit with a vengeance'

30 January

Greece and her creditors have just three weeks to resolve the latest in a long line of fraught stand-offs over the country's rolling programme of bailouts, according to a Greek economics expert.

Failure to successfully conclude negotiations by 20 February, when eurozone finance ministers next meet, could "bring back the scenario of Grexit with a vengeance", Aristides Hatzis, professor of law and economics at the university of Athens, told The Guardian.

"If there is no agreement by the end of February, Europe's electoral calendar could kick in and freeze talks until May, by which time it will be too late," added George Pagoulatos, professor of European politics and economy at the Athens University of Economics and Business.

Greece has to make more than €10bn (£8.5bn) of debt repayments in the summer that it cannot afford without the latest tranche of loans under a third bailout deal reached in late 2015.

But the programme is currently on hold, as a review by eurozone creditors that was supposed to have been concluded in December remains unresolved.

If Greece heads into the summer in bailout deadlock, unable to meet its debt repayments, the prospect looms of a crisis similar to that of 2015, when the EU's single currency stood on the brink of collapse for months.

"Passage of some of the harshest cuts yet has seen the [Greek] government's popularity nosedive in polls," says the Guardian. Prime Minister Alexis Tsipras said at the weekend he would not pass even an "extra euro" of austerity.

Things have come to a head since Greece used funds from an excess budget surplus to make a payout to cash-strapped pensioners before Christmas.

Creditors say Greece doesn't have the money for such windfalls – in fact the International Monetary Fund reckons it can only meet ambitious surplus targets in future years with another round of cuts to pensions and tax-free allowances for those in work.

On the other hand the IMF has also described Greece's debt pile as "explosive". The fund is demanding substantial relief from creditors, which is unlikely before the French and German elections this year.

"Europe needs to take into account the new situation created by the change of political leadership in the US and make decisions based on the common interest," the Greek prime minister Alexis Tsipras said last week, according to Bloomberg.

Greece debt crisist returns after Christmas 'bonus'

19 December

Greece and her creditors are locked in another stand-off, after the country's unpredictable Prime Minister Alexis Tsipras stood his ground on a "pre-Christmas bonus" for pensioners.

In a surprise announcement last week the leftist leader said the government would pay out €617m (£518m) to retirees who, after a series of cutbacks and tax rises, are living on less than €800 (£675) a month, says The Guardian.

That wasn't all. Tsipras also announced that "Greeks living on Aegean isles which have borne the brunt of refugee flows would not be subject to a sales tax enforced at the behest of creditors keeping the debt-stricken country afloat".

Finally, in an "antagonising and pointed" flourish, he said he would introduce free school meals for children living in some of Greece's poorest regions in the north of the country.

The government insists it has the right to spend the money, without seeking permission, because it generated a surplus of €7.4bn (£6.25bn) for the year to November, which the Wall Street Journal says beat its target by €4bn (£3.4bn).

"We will adhere to the [bailout] program to the letter, but whatever outperformance in revenue arises by following to the program, we will not ask anyone in order to give this money to those most in need," Tsipras said.

Creditors disagree. They perceive the handouts as being in contravention of the terms of their bailout - the third in six years - which requires substantial reforms in taxation and pensions.

Last week they suspended debt relief measures that had only been agreed earlier this month and that would have reduced the interest on some of Greece's debt in the coming years. In the longer term the plans could ease the country's debt loan by a fifth by 2060.

Debt relief is seen as key to getting the IMF to participate in the latest bailout, something which is likely to be needed to maintain German support beyond its elections in 2018.

In the meantime, and against the backdrop of another, wider review into its bailout compliance, the Greek debt saga rolls on – and some argue that the financial handouts mean the country is set for fresh political upheaval.

"All scenarios are open, including fresh elections," says professor Dimitris Keridis, who teaches political scientist at Athens’ Pandeion University.