The Telegraph — While Athens has largely stayed out of the headlines, the warnings in an International Monetary Fund report this month lay bare the consequences of repeated rounds of belt tightening in a country where austerity has no end in sight. Even more surprising is the person delivering them.
Policymakers have been at loggerheads over several issues surrounding the Greece’s €86bn third bail-out, including how tough its budget targets should be, how Athens makes the numbers add up, and the perennial issue of debt relief.
As Yanis Varoufakis, the country’s former finance minister, has highlighted, Athens economic woes haven’t gone away: “A prison is not newsworthy as long as the inmates suffer quietly,” he wrote last week.
But the battle that has largely been fought behind closed doors in Brussels has spilled over into the public domain. And it could get ugly.
Alexis Tsipras’s decision to hand a Christmas bonus to pensioners, free school meals for the poorest children and cancel a VAT increase drew the ire of Brussels in a week that saw the eurozone’s bail-out fund suspend a three step debt relief programme designed to smooth repayments, lock-in low interest rates and remove planned increases in the interest rates Greece paid on its loans.
While the issue was resolved on Christmas Eve with a letter from Euclid Tsakalotos to the Eurogroup, the IMF remains unconvinced that the short term debt relief measures, which will cut the debt share by around 20 percentage points in 2060, are enough.
The rest of the eurozone wants to see results before granting more debt relief to Greece. At this rate, the Fund is unlikely to participate in the third bail-out package.
On the face of it, the economic projections look brighter. The European Commission expects the Greek economy to grow by 2.7pc next year, following a contraction of 0.3pc this year.
The primary surplus is expected to rise to 2pc, ahead of a 1.75pc target.
The IMF is still owed around €14bn from previous rescue programmes, according to HSBC, and is keen not to repeat the mistakes of the past.
After all, its own independent evaluation office judged that the Fund had bent the rules during the country’s previous bail-outs.
But the Germans, Dutch, Finns and Austrians have stated they want IMF participation in the third rescue package.
“Technical expertise is what the Germans what. They want the IMF’s reputation, because they don’t trust the commission at a technical level,” says one official.
“The EC on the margin is always fudging the numbers to make it add up better and there’s going to be political manipulation of the technicians’ work.”
The EC’s latest Greek debt sustainability analysis (DSA) expects Athens to “jump start” its arrears clearing programme, buoyed by accelerating growth and sustained primary surpluses of 3.5pc of GDP for a decade.
In May, the Washington-based institution decided it was no longer willing to play the commission’s game, releasing its own explosive DSA that showed that without meaningful debt relief, the country’s debt share would climb to 250pc of GDP by 2060.
Moreover, such high primary surpluses, it warned, were rare even when countries were booming.
For Greece, which has spent more than half a decade in recession, it would be almost impossible.
EU Economy Commissioner Moscovici’s claims that Greek reforms had “expanded the tax base significantly” were torn apart by the Fund, as was his assertion that the pensions system should be protected because Greece “does not have a well-developed social safety net”.
For Thomsen and Obstfeld, building such a safety net was “critical for broad social support in a modern market-oriented economy”.
Analysts say Greece will have enough money to fund itself until July, when it needs to pay the ECB, IMF, and private bondholders a total of €7bn.
“We see a high risk of the programme negotiations stalling again. This would also push back the timing of Greece accessing [the European Central Bank’s] quantitative easing programme, possible IMF participation, and removal of capital controls,” says Fabio Balboni at HSBC.
All this at a time when Greece could hold another general election and Angela Merkel faces her own political test in Germany.
