As Greece smolders, its creditors in Europe resist further concessions
By Howard Schneider,
Throughout the euro zone’s financial crisis, there have been pledges of solidarity among the nations and promises that budget cuts mandated under various bailout programs wouldn’t hurt the poor.
But as Greece confronts a 25 percent unemployment rate and a cratering economy, it will make an estimated $16 billion in interest payments this year — much of it to other European governments that have lent it money, to the International Monetary Fund and to the European Central Bank, now one of the country’s major bondholders.
That’s more than Greece expected to spend on education and public health care combined, under one recent budget plan. It is enough to nearly eliminate the government’s deficit for the year and, if invested differently, could do much to ease Greece’s chronic recession.
Whether to force Greece to make those massive debt payments to other governments and international institutions is at the center of discussions in Brussels this week about how to put the country’s latest bailout back on track. Euro-zone finance ministers ended a marathon session early Wednesday without reaching an agreement.
Negotiations have been deadlocked for weeks, with Greece’s major creditors unwilling to grant any relief. Without a deal, the IMF will not approve any further disbursements under its bailout program. Bailout lending has been suspended since early this year while Greece held elections and then debated further spending cuts and tax increases demanded under the terms of the rescue program.
“It is clear that Greece has delivered” after recent parliamentary votes narrowly approved the latest round of austerity measures, said Jean-Claude Juncker, head of the committee of finance ministers debating Greece’s bailout program.
Even after the latest round of spending cuts, Greece’s government remains $40 billion short of what it is expected to need over the next three years. That is roughly the amount it is also due to make in interest payments, according to the IMF’s most recent public assessment of the country’s finances.
Ideas under discussion include an outright reduction in the amounted owed — similar to the debt “haircut” of more than 50 percent that private bondholders accepted earlier in the year. There is also discussion of reducing interest rates or pushing repayment of the principal far into the future.
As of Tuesday, all parties still wanted their money back on time and in full — whether it’s the bilateral loans that nations such as Germany made for Greece’s first bailout, loans from a euro-wide rescue fund that came later, or payments to the ECB, which for a while bought Greek bonds on the open market to try to stabilize the country.
Under its charter, the IMF does not reschedule loans and cannot offer terms of longer than four years.
The issue is politically fraught. Rescheduling Greece’s loans, reducing the interest rate or giving the country out-and-out debt relief means losses for whichever countries or institutions extend those concessions. Nations such as Germany feel they have already put their taxpayers at risk by lending hundreds of billions of dollars to Greece, and allowing outright losses on those loans would be a sharp political blow to any politician. German Chancellor Angela Merkel is up for reelection next year.
Yet there is increasing recognition that without some form of debt forgiveness or rescheduling by international lenders, Greece’s fiscal path is unsustainable. Without a change in the level and terms of its debt, or a surprising economic recovery, that means the country will remain dependent on public financing for many more years to come.