Can Greece Afford "Breathing Space"?
Ralitsa Kovacheva, August 28, 2012
Greece does not want more money. Greece wants "breathing space" to achieve economic growth. Greeks are a proud people and do not want to depend on loans.
With these messages, Greek Prime Minister Antonis Samaras started his campaign to obtain an extension for the implementation of the terms under the country’s second bailout. The coalition government in Athens has not yet negotiated how to achieve budget cuts of around 12 billion euros. Meanwhile, an anonymous source from the Greek Ministry of Finance was quoted by international news agencies saying that the latest Troika mission had revealed the need for further cuts amounting to 2 billion euros or a total of 14 billion euros over the next two years. Samaras's goal is to get two more years (until 2016) to implement painful spending cuts. This "breathing space", in his words, is necessary for the country to achieve economic growth and increase budget revenues.
Samaras has done everything possible to promote his idea before a series of meetings with the most influential European leaders – the Eurogroup President Jean-Claude Juncker, German Chancellor Angela Merkel and French President François Hollande. They, in turn, warned that no decision related to Greece should be expected from the meetings because such would depend on the Troika report (the European Commission, the European Central Bank and the International Monetary Fund) on the implementation of the Greek bailout programme. It will be ready by the end of September and in early October the EU and the IMF will decide on the release of the next tranche (31 billion euros) of the loan totalling 130 billion euros. Then it will become clear whether it is possible for Greece to receive a two-year extension, which Samaras insists on.
Juncker the friend
Jean-Claude Juncker was the only one of his colleagues to go to Athens hat in hand. It is understandable since, as the Eurogroup chief, he has some kind of institutional duty to show support for the Greek government. Juncker said he came as a friend of Greece and praised the huge efforts made by the Greek people which, he noted, were often not recognised by the critics of Greece. He took advantage of his fame as a man who speaks openly to remind what is expected from Greece. First, fiscal consolidation should continue, including improving tax collection. However, Juncker stressed, it is important budget savings not to be made only at the expense of the poorest people in Greece but other parts of society should also contribute to it.
The same was underlined also by the German Chancellor, Angela Merkel – which obviously is a recognition that there are privileged classes in Greece that are not affected by the severe austerity measures. Not coincidentally, in the last two years, one of the most common messages by Brussels to Athens was that, in order to restore social justice, it is important the burden to be shared by all, not only by a small part of society. Other priorities identified by Junker are structural reforms, especially in the labour market, privatisation and financial sector stabilisation. "I oppose a Greek exit from the eurozone," the President of the Eurogroup said and urged those who talk about this to observe a more silent stance.
Antonis Samaras, in turn, confirmed that the privatisation agenda would be widened, that structural reforms would be accelerated and that in coming weeks the government would finalise the package of spending cuts worth nearly 12 billion euros. "Greece is turning a page -- politically, economically and socially," Samaras stated and vowed that soon those inside and outside Greece, who gambled on its exit from the eurozone, would be disappointed. The main goal of restoring the country's credibility will soon be achieved "and when this is restored, it will also change the psychology in both the private sector and international markets, inside and outside Greece," Samaras said.
As for the possible extension of deadlines to implement budget cuts, Jean-Claude Juncker said that everything depended on the Troika report. Which, in turn, depends on the efforts demonstrated by Greece: "The ball is in the Greek court. In fact, it is the last chance."
Before accepting Antonis Samaras in Berlin and Paris, the German Chancellor and the French President met in the German capital to align their positions. In a joint statement the two leaders shared the roles of the good and the bad cop, as Merkel reminded that commitments must be respected and Hollande said he wanted to keep Greece in the eurozone. However, they both stressed that all depended on the Troika report.
The French President has also made clear that Greece was not considered an isolated event but as part of a larger puzzle, which the EU should sort out by the end of the year on the basis of the 'Report of the Four Presidents'. As euinside wrote, the report provides within 10 years the eurozone to have a finance ministry and a central budget, a common economic policy, common debt and common banking supervision in the face of the ECB, and all this to be guaranteed by the necessary democratic legitimacy. The first element of this new architecture – the banking union - should be ready by the end of the year and on September 11th the European Commission is expected to come up with a concrete proposal.
At the last EU summit for the year in mid-December, the European Council President Herman Van Rompuy will present a final report and a specific roadmap for reform of the Economic and Monetary Union. In the words of Francois Hollande, France and Germany intend to "give substance to this roadmap - in the financial, economic, but also in the political sphere."
Athens and Berlin - a new beginning
"Today we mark the beginning of a new relationship between our two countries. It is only a beginning, a first step towards a new beginning," Greek Prime Minister Antonis Samaras said in Berlin. German Chancellor Angela Merkel, in turn, stressed that she was delighted that Samaras's first trip abroad brought him to Berlin (as though it could have been somewhere else!), which was a sign, she said, of the close and good relations between Germany and Greece. German newspaper Berliner Zeitung wrote on this occasion: "What a signal it would be, though, if Merkel were to travel to Athens!"
But the German Chancellor would have hardly received a warm welcome in Athens. Both leaders demonstrated that they regularly read newspapers and are aware of the growing hostility in the headlines. Samaras criticised the "toxic" statements about a possible Greek exit from the eurozone, without mentioning that most of them come precisely from Germany. How to do privatisation for example, when an important official of a country states that Greece will return to the drachma - no businessman will put money in a country that will return to the drachma, Greece's prime minister explained.
Angela Merkel, in turn, said that she read the Greek press carefully to understand the Greek perspective. According to the German Chancellor, there are two different realities in Greece and Germany. The Greeks believe that they suffer and pay too high a price, and the Germans - that they are expected to keep paying, even though the Greeks fail to keep their promises. These two realities have to become one, it is our political responsibility as part of a united Europe to bring these two divergent positions in a common direction, Merkel said. "The European crisis is related first to the fact that we have lost credibility in each other and second, it is not clear whether we are moving in the same direction. We need to restore credibility in each other," the German Chancellor said.
"Greece will remain true to its commitments and fulfil its obligations", the Greek premier in turn assured. "We're a very proud people, and we don't want to be dependent on borrowed money," Samaras said in Berlin.
Solidarity in Paris
In Paris, the Greek prime minister repeated the same messages with a strong emphasis on the need for economic growth, and not just budget cuts – a view fully shared by French President Francois Hollande and his Socialist Party. The statements from Paris, though short, were filled with much more pathos and symbolism: "Europe, among others, means democracy and dignity," Samaras said and noted the importance of social cohesion in European societies. And Francois Hollande, of course, did not miss the chance to mention the need for solidarity – a word carefully avoided by the German Chancellor.
At this stage, Samaras's campaign seems to be successful - he formalised the Greek request for an extension, which so far was mentioned only informally, thus fulfilling his pre-election promise. In addition, with his visits in Paris and Berlin, Samaras demonstrated Greece's desire to start over and regain the trust of its European partners. Not coincidentally, it was the predominant rhetoric in all the meetings - about a new beginning for Greece, both economically and politically, as well as in its relations with European partners; about a change in thinking (in both sides); about restoring mutual trust.
Paris and Berlin, in turn, although without taking any concrete commitments, signalled for their good will. This does not mean that the Greek request for extension will surely be satisfied, but in any case it leaves the door open. And this is important because, although Samaras argues that more time does not mean more money, according to many it is quite the opposite. "More time [...] means more money," German Finance Minister Wolfgang Schaeuble said bluntly. Whatever the Troika report reveals, Greece will likely get the next tranche, as well as more time, even if it means more money, simply because there is no other way. So, by the beginning of October, European leaders will seek not so much a decision for Greece but rather the appropriate arguments to justify the inevitable decision. Restoring the positive image of Greece and demonstration of confidence in the new Greek government are an important part of this argumentation.