WASHINGTON: The third rescue plan for Greece has not even been finalized but already the parties at the center of the deal are raising doubts over its viability.
The key players — Athens, Berlin and the International Monetary Fund — have all voiced criticisms of the conditions that have been sketched out so far.
Their skepticism, which comes from more than just a circle of economists, will have to be addressed if the detailed negotiations to begin soon on Greece’s third bailout operation in six years are to be a success.
Unsurprisingly, the sharpest reservations come from Greece. The deal, squeezed out from grueling negotiations on Monday with almost no time to spare, imposes yet more austerity on the country and to some extent leaves its economy subjugated to outside powers.
With his signature on the pact hardly dry, Greek Prime Minister Alexis Tsipras called it an accord he did “not believe in,” but said that he had accepted it to avoid a potentially catastrophic default and exit from the euro area.
“I had specific choices before me: One was to accept a deal I disagree with on many points, another was a disorderly default,” Tsipras told the Greek parliament.
“I don’t know if we did the right thing. I do know we did something we felt we had no choice over,” said Finance Minister Euclid Tsakalotos.
The road then seems long before the authorities take “ownership” of the plan, as IMF Managing Director Christine Lagarde hopes will happen.
Meanwhile Germany, Greece’s most powerful creditor, was hesitant over the deal, with some officials suggesting that it still might be better for Greece to exit the euro, at least for a five-year “time-out.”
Speaking to the Bundestag on Friday, Chancellor Angela Merkel urged legislators to support the deal, but not in the most convincing language.
“We would be grossly negligent, indeed acting irresponsibly, if we did not at least try this path,” she said.
The chancellor referred to “legitimate skepticism” and called it a “last try” even as she urged lawmakers to back it, saying the alternative was “chaos and violence” in Greece.
Her Finance Minister Wolfgang Schaeuble also urged German lawmakers to back the new deal, even as he still suggested that a temporary Grexit might be the best.
“We can’t do it, we don’t want it… but that possibly would be the best solution, he said.
IMF: ‘not very concrete’
The IMF though raised the greatest doubts. The Washington-based crisis lender sent shock waves through the entire process when it said the deal as sketched out was not workable, and that it could not join in unless there was “dramatic” relief on Greece’s debt to ensure its finances are “sustainable” over the long run.
In tough language, a senior IMF official labeled Monday’s agreement between Athens and European leaders “by no means a comprehensive, detailed agreement.”
“It’s fine for the Europeans to say now that… ‘we stand ready to provide debt relief.’ That is not very concrete,” the official said.
The Europeans now appear prepared to accept the IMF’s point, though there could still be disagreement on the extent of debt relief needed for sustainability.
But the IMF’s doubts are not limited only to that issue. It also sees that budgetary targets required of Athens under the bailout plan are almost unreachable. Creditors have required Athens to achieve and maintain a budget surplus (excluding debt service) of 3.5 percent of GDP.
But an IMF study of Greece’s finances going ahead says that “few countries” ever attain such a margin, much less sustain it over a long period.
And the Institute of International Finance, the banking group which had a key role structuring Greece’s second bailout, questioned the proposed third plan’s insistence on first cleaning up the Greek budget before restoring economic growth.
“Future program design should pay far more attention to growth-promoting measures and not exclusively to attaining primary surplus under any circumstances,” it said.