The Dominion Post
Eurozone’s balancing act with Greek bailout
The short honeymoon is over for Greece’s new prime minister, write Svenja O’Donnell and Nikos Chrysoloras.
UNITED STATES and British leaders are expressing frustration at Europe’s failure to stamp out financial distress in Greece and the risk it poses to the global economy. Britain’s Chancellor of the Exchequer, George Osborne, whose government faces voters in three months, became the latest critic, following comments by Britain’s central banker, Mark Carney, and US President Barack Obama.
‘‘It’s clear that the standoff between Greece and the eurozone is fast becoming the biggest risk to the global economy,’’ Osborne said after meeting Greek Finance Minister Yanis Varoufakis in London. ‘‘It’s a rising threat to our economy at home.’’
Varoufakis travels to Rome this week, along with Greek Prime Minister Alexis Tsipras, in a political offensive geared to building support for an end to Germanled austerity demands, a lightening of their debt load and freedom to increase domestic spending even as they rely on bailout loans.
Tsipras, who went to Cyprus early this week, also heads to Brussels and Paris.
Calling the meeting with Osborne a ‘‘breath of fresh air’’, Varoufakis said, ‘‘we are highly tuned into finding common ground and we already have found it’’.
Osborne’s comment came a day after Obama questioned further austerity. ‘‘You cannot keep on squeezing countries that are in the midst of depression,’’ he said.
Greece’s economy has shrunk by about a quarter since its first bailout package in 2010. Tsipras was elected on January 25 promising to end the restrictions that have accompanied the aid that has kept it afloat.
The premier issued a conciliatory statement on January 31, promising to abide by financial obligations, after Varoufakis said the country won’t take more aid under its current bailout and wanted a new deal by the end of May.
Before his appointment as finance minister, he advocated defaulting on the country’s debt while remaining in the euro.
The Greek finance minister told bankers in London he wants the country’s ‘‘European Union-related’’ loans to be restructured, leaving debt to the International Monetary Fund and the private sector intact.
Carney last week called the 19-nation euro area ‘‘unfinished’’ because of the absence of a co-ordinated fiscal policy. ‘‘Progress on structural reforms in the euro area remains uneven,’’ he said. ‘‘Cross-border risk sharing through the financial system has slid backwards. Europe’s leaders do not currently foresee fiscal union as part of monetary union. Such timidity has costs.’’
Such criticism has been consistently rejected by Germany, which has led policies requiring belt-tightening to the countries that have received assistance.
German Chancellor Angela Merkel is now waiting out Tsipras, who has failed to budge European policymakers on his week-old government’s key demands.
Officials in Berlin, Paris and Madrid rejected the possibility of a debt writedown raised by Greece’s antibailout coalition, as they held out the prospect of easier repayment terms, an offer that has been on the table since November 2012.
Greek stocks and bonds rebounded early this week following the weekend assurance by Tsipras, making up some of the ground they lost last week.
Greek banks lost at least 11 billion (NZ$17b) in deposits in January, according to four bankers who asked not to be named because the data were preliminary. The outflow accelerated from about 4b in December. Deposits totalled 160.3b (NZ$248.6b) at the end of 2014.
At the moment, the country has a special dispensation from the ECB because it’s considered to be complying with the bailout programme. That means its debt can be used in central bank refinancing operations even though it is rated junk.
‘‘Without European loan support, Greece will run out of money in March, possibly sooner,’’ said Nicholas Economides, professor of economics at New York University.. ‘‘This could result in a new Greek bankruptcy within the euro or even a ‘grexit’.’’