Fiscal ‘freedom’ or partner support

Listening to representatives of the institutions who are involved in managing pivotal aspects of the Greek program at the Delphi Economic Forum over the weekend confirmed that lenders want to disentangle themselves from the Greek snarl as soon as possible, and in order for that to happen as smoothly as possible they are prepared to put a very positive spin on the real situation, to present improved assessments and to exert their influence on other institutions and credit rating agencies to act accordingly. What they want more than anything is to end their involvement with Greece as painlessly as possible and without putting an additional burden on European taxpayers and voters. And if this comes at a heavy price for Greece, then so be it. It is Greece’s problem, not theirs. The message was clear, both in the public speeches and private conversations: It’s up to Greece to go forward without a precautionary credit line and decide to tap the international markets in order to create a cushion of some 20 billion euros – around half from the capital left over from the international bailout loans and the rest coming from bond issues. And when the European Stability Mechanism is ready to lend to Greece at an interest rate of less than 1 percent at a time that the mar- ket rates stand at around 4 percent, then if Greece decides to go with the latter, then this too is Greece’s problem – or, rather, a cost that Greece is choosing to shoulder. It’s Greece’s right, the foreign lenders say. It is a free country with a democratically elected government that is choosing its policy. What it boils down to, though, is that Greece will have to pay around 1 billion euros in interest over the next three years in order to get funding from the markets that it may not actually need. One government official asked me at Delphi, “Why should we stay under foreign supervision and not have our freedom of action?” It is a reasonable question, but the government still has to prove that this so-called “freedom of action” is worth more than 1 billion euros – a rather hefty price tag given the battles being fought to keep 100 or 200 million euros from being cut from the budget. Not to mention this much-touted freedom will probably be quite limited by the tough fiscal measures that have already been voted and will be implemented in the next three years. In the meantime, ESM chief Klaus Regling warned in Delphi that even if there is no precautionary credit line, if conditions demand it, Greece’s supervision will still be tightened. So much for “freedom of action.”