France and Italy will do whatever it takes to support Greece. But the patience of other eurozone countries is wearing thin, even if the political and financial cost of Grexit would be far greater than another postponement the country’s debt repayments. EURACTIV France reports.
The tragic comedy unfolding between Greece and its European partners/creditors could come to a head today (Monday 22 June) at the extraordinary Euro Summit in Brussels.
“We must all make an effort: the eurozone countries on the extension of the Greek support programme, but also Greece, whose latest proposals have been a backward step,” a European source told EURACTIV. But a new Greek proposal, delivered on Sunday, could turn the tide.
France, Italy and Greece against the world
The Greek question has divided the members of the single currency into two blocs. Greece can count on the support of France and Italy, even if a majority of the 19 eurozone countries oppose any further extension to the Greek repayment plan.
As financial markets bet on default, Italy has seen the cost of its own debt rise in line with the deterioration of the Greek situation. For Rome, Grexit is not an option. In France, support for Greece is more a question of principle.
The Commission sees itself in the role of umpire, even if “the atmosphere is one of exasperation,” according to our source. “We are in the best position to find a compromise, but we have been taken for a ride”, the source added.
Budget surplus and systematic leaks
The Commission is particularly frustrated by the Greek government’s latest U-turn on the budgetary surplus agreement that was reached a fortnight ago. The agreement was based on a staggered budgetary surplus programme of 1% in 2015, 2% in 2016, 3% in 2017 and 3.5% in 2018. After initially accepting this programme, the Greek government proposed its own surplus increments of 0.75%, 1.5%, 3% and 3.5%.
Another source of irritation for the European executive is the systematic leakage of working documents. At a recent Eurogroup meeting, German Finance Minister Schaüble reportedly looked Tsipras in the eye and told him he had no confidence in Greece’s ability to pay back any new loans it may be given.
But reassuringly for the Commission, the latest Greek proposals, delivered on Sunday, were not leaked.
— Martin Selmayr (@MartinSelmayr) June 21, 2015
The increasing uncertainty is already costing the most indebted countries dearly, and many of Greece’s European creditors are ready to say “enough is enough”. But the cost of a default to growth and interest rates would certainly be greater, as the eurozone’s credibility would be severely undermined.
Credibility of EU heavyweights in question
Many political heavyweights, including François Hollande, Angela Merkel, Christine Lagarde and Jean-Claude Juncker, have put their credibility on the line over the issue. For them, Grexit would be an unacceptable political failure, so they will do all they can to avoid it, whatever the financial cost.
The Greek crisis has already blocked the political progress of the Economic and Monetary Union for years, to the frustration of those in favour of deeper federalisation.
The financial cost of keeping Greece in the single currency is not excessive. The EU still has room to manoeuvre to arrange a low cost repayment of the Greek debt. Interest rates have collapsed since the repayment plan was negotiated in October 2012, so the repayment schedule could be extended without compromising Greece’s ability to pay back the debt.
This was the conclusion of the think tank Bruegel, which last week published a paper entitled “Why a Grexit is more costly for Germany than a default inside the euro area”.
The anti-austerity party Syriza won an overwhelming victory in the Greek elections on January 25, but nonetheless failed to obtain an absolute parliamentary majority.
The party leader Alexis Tsipras provoked mixed reactions among his EU counterparts, announcing that the "vicious cycle of austerity is over".
The reforms offered by Athens have failed to convince the Eurogroup and the country's creditors, and Greece now finds itself unable to pay its debts and in a more precarious situation than ever.