The current chapter of Greece’s European bailout drama seems to be reaching a climax.
The leaders of all the major creditors met last night. Mario Draghi represented the European Central Bank (ECB, Christine Lagarde the International Monetary Fund (IMF), Jean-Claude Juncker the European Commission and Angela Merkel and Francois Hollande respectively representing Germany and France as the Eurogroup’s two largest economies.
They were hammering out a final unified stance to present to Greece before Athens has to make its June 5 IMF payment — one which by all accounts it will seriously struggle to make.
The anti-austerity government that took power in January has been locked in difficult talks to unlock billions of euros in bailout money so that it can avoid a default — but there may just be too much of a gulf between the leftists that now run the Greek state and the international institutions that fund their bailouts.
Greece has been told by the IMF that it can bundle the payments it has to make this month (of which there are four) into one, which it could delay until later — but so far the government has expressed little interest in this option.
What now remains to be seen is how much the two sides have actually compromised on.
German newspaper Die Welt reported overnight that Greek Prime Minister Alexis Tsipras was beginning to cross one of his own negotiating red lines, and considering reforms to Greece’s pension system, including cuts and a higher retirement age.
If true that’s a major development on one of the four important compromises the deal will need. Here’s what they are:
- Greece’s fiscal position: This includes both immediate concerns, like how much of a budget surplus Greece is expected to run, and potentially longer-term debt relief
- Privatisation: The new government was elected in part in objection to the privatisations that have been brought in under previous agreements.
- Labour market reforms. Athens wants to increase Greece’s minimum wage, while the creditors want further labour market deregulation.
- Pensions. As mentioned, the institutions lending Greece money think its pension system is over-generous and needs paring back. This could be a huge political problem for Tsipras if he concedes.
According to Manos Giakoumis of the Macropolis consultancy, Greece’s deputy prime minister says Greece must not be asked to run a primary budget surplus (before interest payments) of more than 1% of GDP this year, and 1.5% next year. Those are big reductions from the 3% for this year and 4.5% for 2015 that the previous bailout deal projected.
Former French finance minister and current EU finance commissioner Pierre Moscovici sounded pretty optimistic about the progress on Tuesday morning.
Greek labour minister Panos Skourletis sounded less promising, telling Skai TV that the government was effectively done making compromises, and that any which that moved the government further away from its election promises would be grounds for an election.
That shows some of the internal political opposition that Tsipras is up against. He’ll have to pass any deal (and the reforms attached) through his own parliament, and the content will determine how many of his own leftist lawmakers rebel. Forging alliances with other parties, including potentially the centre-right New Democracy that he ejected from power, could be a painful ask.