Cause and Effect in European Politics and Law

Greece Could Have the Cake and Eat It Too, as well as the Eurozone

Ralitsa Kovacheva, August 29, 2012

While expecting the life-giving tranche under its rescue loan, Greece has once again put the patience of its EU partners to the test by asking for the most expensive thing: more time. Although paradoxical at first glance, euinside`s forecast is that Athens would be given both more money and more time.

By the end of September, the mission of the Troika (the European Commission, the European Central Bank and the International Monetary Fund) should be ready with its report on the implementation of the Greek bailout programme. It will depend on this report whether Greece will receive the next 31 billion euro tranche of the second rescue loan from the EU and the IMF totalling 130 billion euro. As well as more time to make painful budget cuts, stipulated by Athens's international creditors.

Meanwhile, the coalition partners in the Greek government have to agree on the package of spending cuts worth almost 12 billion euros. And while negotiations are in progress, there is unofficial information that actually spending should be slashed not by 12, but by 14 billion euros. Moreover, under the terms of the loan, the savings are supposed to be made over the next two years.

Greek Prime Minister Antonis Samaras, however, has started a campaign to win a two years delay for the budget cuts. His argument - Greece urgently needs economic growth. At first glance Samaras's request sounds quite reasonable. The problem is that under 'more time' it is logical one to presume more money as well, because if the country does not reduce its costs it will need more money to cover them.

Thus, the answer to the question whether Greece will be given an extension depends, first, on how much more money it will need and second, on how will it obtain the money. According to various sources, it is about an amount of between 18 and 20 billion euros. The sum is not too big compared to the aid Greece has received so far, but just now a third bailout is a taboo topic in the eurozone and the Greek authorities are aware of this. However, there is also the option the country to raise money by issuing Treasury bills, as it did recently to repay a loan to the ECB.

From the series of meetings of Greek Prime Minister Samaras with Eurogroup President Jean-Claude Juncker, German Chancellor Angela Merkel and French President Francois Hollande there is no clarity what are the chances Greece to be given more time. Meanwhile, however, Austrian Chancellor Werner Faymann told the newspaper Österreich that Greece could be given two or even three years more if it respected its commitments. "The most important thing is that the Greeks stick to the reforms and savings targets agreed with us. If that is guaranteed, I'm in favour of an extension of the debt repayment." According to Austrian Chancellor, the crisis and unemployment in Greece were so great that it would not make it without delaying the debt payments. He sees "quite a good chance" an agreement to be reached with Greece that it will stick to the agreements and the EU in return will give Greece more time to repay its loans.

At first glance Faymann's statement seems somewhat surprising, given that Austria usually shares Berlin's view in terms of budgetary discipline. However, it should be borne in mind that Chancellor Werner Faymann is a Social Democrat in the sense that it is logical to assume that his position is also shared by French President Francois Hollande who, although not making statements to this effect, stressed the need to show solidarity to Greece. It can also be assumed that Italian Prime Minister Mario Monti would also support concessions aimed at promoting economic growth in Greece. Not to mention the Spanish Prime Minister Mariano Rajoy, whose country has already benefited from its European partners' leniency.

Against this background, it can be forecast that if the Troika report shows (and meanwhile Greece also shows) that the commitments are implemented, the European partners, with clear conscience, could give a green light for both the next tranche and more time to Greece. Moreover, if the report confirms the amount of the additional resources needed by Greece and the experts decide that these can be collected by Athens itself, and not paid by its eurozone partners.

Such a solution would benefit all - the EU will be able to demonstrate solidarity with Greece, without having to pay dearly for it, and the Greek government will receive "breathing space" as in financial so in political terms. Meeting one of the main pre-election promises of both major parties PASOK and New Democracy (which now run the country along with the Democratic Left) - rescheduling the heavy budget cuts, will allow the Government to benefit, at least temporarily, from a luxury that seems forgotten in the last year – voters trust and political stability.