Discussions between Greece and its creditors are tense, despite the major reforms accepted by the Greek parliament, the Vouli, on Monday (19 October). The talks between Greece and the new institutional ‘quartet’ began on Wednesday (21 October). The old troika of the Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) has been joined by the European Stability Mechanism (ESM).
On Wednesday afternoon, Olga Gerovasili, a spokesperson for the Greek government, spoke of a “very hard battle” with the institutions.
At the heart of this battle are the Greek banks, which were severely weakened by the massive withdrawal of deposits in the first half of this year. Added to this is the increasing cost of debt. According to the Bank of Greece, in 2014 this represented 34% of the total deposits held by all the Hellenic banks put together.
This figure has risen since 2014, and will continue to rise as Greek GDP contracts in 2015 and 2016. Fewer deposits mean more toxic debt: the Greek banking system needs a bailout.
Banks and evictions
The Greek government says it needs a recapitalisation fund of €25 billion. But the creditors clearly hope to provide only the bare minimum. As the supervisor of the process, the ECB plans to carry out an asset quality review (AQR) to determine exactly how much money the banks need before bailing them out. But the conditions attached to this bailout may create a raft of other problems.
Greece’s creditors are now demanding that borrowers who cannot afford to repay their loans be evicted from their homes. The vacated properties would then be sold in order to settle the exact payment due on each loan.
Up to now, households with modest incomes have been protected from eviction as long as their main residence was worth less than €250,000; a measure that has helped to keep many families hit by unemployment off the streets.
But the creditors want this limit lowered so more bank loans can be recovered in this way. Olga Gerovasili said that the government was “fighting to maintain the protection of main residences”.
The Cypriot precedent
A similar issue arose in Cyprus last year. The Cypriot parliament refused to implement the tougher eviction conditions demanded by the troika, and the ECB responded by excluding Cyprus from its quantitative easing programme. The troika then froze all transfers to Nicosia, pushing the island to the verge of bankruptcy. Under pressure from the government, the parliament finally accepted the demand to make evictions easier to carry out.
Creditors unsatisfied with “reforms”
Greece’s creditors have also been very picky about which of the reforms they are prepared to accept. So far, Athens has adopted 19 of the 48 reforms requested by the European institutions for this Autumn. According to the Spain’s El Mundo, this has “provoked fresh concerns in the troika”.
The same source said that Jean-Claude Juncker plans to discuss it with Angela Merkel at the European People’s Party congress, currently taking place in Madrid. For Greece’s creditors, Athens still has a way to go, and they plan to make themselves heard.
The aim of the quartet’s current visit will be to assess whether Greece will be able to fulfill its objectives. But many points, including the VAT hike on private education from 13% to 23%, remain very delicate in Greece. Alexis Tsipras has promised to come up with “alternative measures” to avoid this increase.
The tax on rental income is also under scrutiny, and the quartet will likewise assess the latest pension reforms, which will see some pensioners lose out as the system is consolidated.
Athens still under pressure
Despite the show of good will from Alexis Tsipras, Greece’s creditors evidently do not plan to release their grip on the government, and Athens hardly seems able to resist. Last year’s Cypriot example is proof enough of how futile resistance can be.
How can Alexis Tsipras expect to resist when he desperately needs the €3 billion from the ESM to cover his bills up to the end of the year? If he fails to satisfy the quartet, he will not be able to count on two key elements of his economic programme, the restructuring of the debt and the entry of Greece into the ECB’s quantitative easing programme.
The Greek government will surely not give up the “battle” at this first visit from the quartet, but in the end it will have to conform to the requirements of its creditors. The time for fighting ended on 13 June.
