As expected, talks between the far left Greek government and European finance ministers broke down today with no agreement in sight and no viable way forward.
Greece wanted a 4-6 month extension of the current bailout terms — minus a few austerity measures that include further cuts to government pensions and an increase in the value added tax. In truth, the radicals were not elected to keep the status quo, which is the main reason for the total failure of the talks. On the other side, eurozone finance ministers can’t radically alter the terms of the $280 billion bailout because doing so would open a can of worms with other bailout countries like Ireland and Portugal who would want their own “adjustments” to their deals.
Bottom line: Greece doesn’t want to pay back their $318 billion debt and are demanding the rest of Europe fund its bloated welfare state. Of course, they deny this is their plan, but looking at details of what they have been offering after this proposed extension leads one to no other conclusions.
The Greek government has already taken a step back by agreeing to an extension of the bailout. But without the austerity measures they want taken back, they will not hit their deficit targets. This is simply unacceptable to the EU, as are Greek plans to roll back budget cuts, increase pensions, and cut taxes.
There just doesn’t seem to be any common ground.
During the meeting, ministers and other officials tried to convince Greece that the risks of leaving its rescue program behind without a new financing deal are too big. Mario Draghi , the president of the European Central Bank, warned ministers that the situation of Greece’s banks was deteriorating, as citizens and businesses withdraw deposits and economic growth slows, according to an official present at Monday’s talks.
The official said that Mr. Draghi didn’t say when the ECB may cut off liquidity support from Greece’s own central bank, but “it was clear from what he said that this is becoming an issue.”
Ministers from several countries, meanwhile, complained that Greece had failed to show what steps it was prepared to take in return for continued aid, the official said.
As ministers were holding talks in Brussels, they received press reports of Greek officials in Athens rejecting a statement that had been prepared by Mr. Dijsselbloem earlier in the day. The statement committed Greece to seeking a six-month extension to its bailout deal, but giving it some leeway on the budget cuts and economic reforms it has to implement in return.
Greek officials in Athens called the proposals “absurd and unacceptable,” adding that “there can be no agreement [on new financing] today.”
“That contributed to the [already negative] atmosphere,” said the official present at the Brussels talks. Shortly after, ministers decided to end the meeting.
In a news conference, Mr. Dijsselbloem said finance ministers were ready to hold another round of talks Friday, provided that the Greek government commits to a number of principles set out by the ministers.
Those principles included a promise by the Greek government not to roll back unilaterally already-implemented budget cuts and reform measures and to take any new measures only in coordination with the European institutions and International Monetary Fund. The government must also commit to repay all creditors, ensure the stability of the country’s financial sector—and conclude its existing bailout program.
The EU ministers have no clue who they are dealing with. The Greek radicals know or care little about high finance. They are seeking a political solution that will give both sides cover, rather than solve their deep and dangerous debt problems. They want to give the illusion that they are going to pay down their debt while grasping for new funding so they can go back to their profligate spending ways.
Finance Minister Yanis Varoufakis has proposed swapping euro zone loans for long-dated GDP-linked bonds that would pay interest as the economy recovers, and ECB holdings of Greek debt for interest-bearing perpetual bonds with no repayment deadline.
The Greek government also wants the interest returned on those bonds. And with no repayment deadline for the ECB bonds, the debt will continue to balloon.
Greek President Alex Tsipras has painted himself into a political corner. He can’t give in to the EU or his government would probably collapse. But he needs the EU or the Greek economy will collapse. Tsipras believes he has the rest of the EU over a barrel. He thinks Europe is terrified of a Greek exit from the eurozone and will eventually give him what he wants.
In this, he may be right. But the Greeks certainly aren’t winning friends and influencing people with their hardline attitude.