Greece last week managed to swing €7.16 billion (£4.9 billion, $US7.7 billion) in emergency funding from Europe after it agreed to harsh austerity measures and a sweeping privatisation programme. In short, Prime Minister Alexis Tsipras folded to the Eurogroup’s demands, just to keep the lights on.
But the massive concessions look futile just days later — and it underlines just how desperately Greece needs debt restructuring.
The emergency “bridging financing” from the European Financial Stability Mechanism (EFSM) was supposed to last Greece till at least the end of the month. But less than a week later, it’s pretty much all gone.
Reuters is reporting that Greece has begun repayments to the IMF, ECB and Bank of Greece totalling €6.25 billion (£4.35 billion, $US6.7 billion). The ECB is due a payment of €3.5 billion (£2.4 billion, $US3.78 billion) today, while Greece is in arrears to the IMF for €1.6 billion (£1.1 billion, $US1.7 billion). The interest on both takes the totals up to €4.2 billion (£2.9 billion, $US4.5 billion) for the ECB group and €2.05 billion (£1.4 billion, $US2.22 billion) to the IMF.
This is the starkest example we’ve seen yet of just why Greece needs massive debt restructuring — the country is effectively an economic zombie existing solely to pay off debts. Its economy is flat-lining and any funding that comes in goes straight back out again. (Both The New York Times and Bloomberg have used the term “zombie” recently to refer to Greece’s economy.)
Greece’s creditors are starting to realise something has to change. The IMF has called these debts “unsustainable” and Germany’s finance minister Wolfgang Schäuble says Greece should perhaps leave the euro temporarily.
It clearly doesn’t make sense for Europe to pay out €7.1 billion to ensure “financial stability” when €4.2 billion simply returns to another European funding pot and much of the rest goes to other creditors.
What Greece wants — and what the IMF has suggested — is a debt repayment and interest holiday while it gets its economy back to growth. Once GDP growth outstrips interest payments, Greece can begin to chip away at its debt pile without resorting to a fire sale of assets and crippling taxes, as it is now.
But Germany’s Chancellor Angela Merkel, the powerhouse in Europe’s negotiations, is holding firm. Germany is Greece’s biggest creditor and Merkel is insisting that Greece cannot get off that easily — it must pay off its debts and suffer the consequences of running them up in the first place.