Tough road for Greece as Merkel hails ‘starting point’

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ATHENS: German Finance Minister Wolfgang Schaeuble voiced doubts on Wednesday (Thursday in Manila) on whether indebted Greece can live up to its fiscal promises, underlining the problems facing Athens on both the domestic and EU fronts.

His comments came on the day that the hard work for Greece’s new anti-austerity government began, with German Chancellor Angela Merkel saying an agreement on a four-month extension of Athens’ bailout was merely a “starting point.”

“I’m under no illusion that the way ahead will remain challenging,” Merkel, whose country’s taxpayers have stumped up more money than any other to keep Greece financially afloat in recent years, told reporters in Berlin.

Her Finance Minister Schaeuble said there is a “lot of doubt in Germany” about whether Greece, which has been fighting to stay in the single currency since 2010, will live up to its commitments.


“The question now is whether one can believe the assurances of the Greek government or not,” Schaeuble said.

Despite such misgivings, Greece on Tuesday secured a four-month extension to its 240-billion-euro ($270 billion) bailout, averting a potentially calamitous expiry on Saturday that could have seen Athens leave the euro.

Greek stocks soared almost 10 percent on Tuesday—falling back only slightly on Wednesday—and yields on its 10-year bonds fell back to levels last seen before elections were called in December.

The Greek and German parliaments still have to give the green light, but this should be a formality with Merkel and Greek Prime Minister Alexis Tsipras enjoying sufficient support among their MPs—for now at least.

To win this breathing space, Greece presented its creditors with reform proposals focusing on tackling tax evasion, corruption, a root-and-branch efficiency drive and promising not to roll back privatizations.

But Tsipras, elected last month, had to temper promises to hike the minimum wage, reinstate laid-off civil servants and alleviate poverty by vowing that this would be done only in consultation with Greece’s creditors.

Already on Tuesday the plans received a cool response from the European Central Bank and the International Monetary Fund, which together with the European Commission hold most of Greece’s 320 billion euros ($365 billion) in debts.

IMF chief Christine Lagarde said the list lacks “clear assurances” on Greece’s previous reform promises, while the ECB said the measures “differ from existing program commitments in a number of areas.”
“We avoided a crisis but there are many challenges ahead,” EU Economic Affairs Commissioner Pierre Moscovici said.

Historic haircut
Greece has had to be bailed out twice—in 2010 and 2012—and has also benefitted from a mammoth private-sector debt writedown or “haircut” worth another 100 billion euros.

A string of debt interest repayments fall in the coming months, and Greece needs to firm up its reform plans and show by the end of April they are bearing fruit before receiving a final bailout disbursement of 7.2 billion euros.

“The government is going to move very quickly” to crystalize the reforms, Tsipras told a meeting of his Syriza party on Wednesday, saying he was ready for “every break necessary” with the practices of the past.

Government spokesman Gabriel Sakellaridis, portraying Tuesday’s agreement as a victory for Greece, said meanwhile that the reform promises “consists of generalities in lots of areas . . . and leave room for maneuver.”

In the coming four months Tsipras, 40, wants to begin negotiating a new reform program with Greece’s creditors to put the country of 11 million on a more equitable road to recovery after six years of recession and cuts.

This could include another renegotiation of Greece’s debt—if not a “haircut” then at least easier terms—and yet more aid. German daily the Rheinische Post reported Wednesday this could be worth upwards of 20 billion euros.

“Even assuming that the deal [from Tuesday]holds, it is unclear how the government will meet its financial obligations between now and the end of April,” said economist Jennifer McKeown at Capital Economics.

“And after that, there is a mountain to climb in agreeing how to make Greece’s long-term debt position sustainable. That particular fight has clearly been put off for another day,” McKeown said.

AFP

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