On Thursday 18 June, yet another Eurogroup meeting ended in disappointment, as Greece and its international creditors failed to converge towards a deal that would boost confidence in international markets and end growing speculation that Greece is headed towards the notorious “Grexit” door. Considering that all previous crunch meetings with the SY.RIZ.A government went down to the wire, the result of Thursday’s Eurogroup should come as no real surprise.
Fundamental disagreements and mistrust linger on, with neither side showing willingness to back down on key political points. Greek officials have the insurmountable task of balancing between the demands and expectations of creditors and a country on the brink of financial collapse and civil unrest, with over 50% youth unemployment and around a million families living from grandpa’s €600 pension. As long as European leaders and Greek officials continue to focus on areas where they disagree, the longer the word “reform” will continue to be perceived as a dirty word by Greek society. Yes, Greece needs structural reform from top to bottom; even Greek government officials recognise this. Together with the OECD, Greece and EU leaders need a master plan to facilitate a recovery. To date, we have not yet seen an agenda of reforms that is 100% shared between the creditors and Greece, even if there are important points of agreement such as on strengthening tax collection. However, before we get to the master plan, Greece has more bills to pay.
The Eurozone Summit: a hot potato in the hands of Chancellor Merkel
With the clock ticking and “Grexit” edging agonisingly closer, both Greek and German Finance Ministers, Varoufakis and Schauble, will be watching the game unfold from the bench, as EU leaders endeavour to find a deal in the eleventh hour at an emergency Eurozone Summit on Monday 22 June. As hard as it may be to fathom, Greece’s SY.RIZ.A led government are exactly where they wanted to be. A political negotiation in the context of a Eurozone summit is precisely what they wanted pre-election and precisely what Jeroen Dijsselbloem categorically rejected on his first visit to Athens. Benching hardliner Schauble was always an integral part of Greece’s strategy. No doubt a risky strategy: one that hinges on the hope that Chancellor Merkel will prove to be the European stateswoman that puts the interests of the European idea over the next general election. Fed up of dealing with Varoufakis, Schauble has nothing to lose and potentially everything to gain by throwing the hot potato into Merkel’s hands. A big question is whether Tsipras has underestimated the resentment that has grown amongst the creditors in getting to this point.
The geopolitical dimension
A most recent poll in Greece indicates that if elections were to take place: SY.RIZ.A would gain 33.5% of the vote, with 22% voters undecided and New Democracy with 13.5%. External pressures aimed at creating a rupture in SY.RIZ.A’s ranks have been met with stubborn resistance. Despite SY.RIZ.A’s polyphony and inexperience, they have survived longer than most thought they would, and PM Tsipras is a man unchallenged, with both traditional centrist parties (PA.SO.K and New Democracy) still picking up the pieces following January’s general election.
Ahead of Monday’s summit and in a move to reinforce its position, Greece played the Russia card today, signing a Memorandum of Understanding with Russia to build a 47 billion cubic metre gas pipeline through Greek territory with Russian financing. This is sure to set off alarm bells in European capitals and across the Atlantic. In an extreme scenario, and given the geopolitical issues at stake around Greece’s borders (diversification of energy supplies, Islamic fundamentalism), the United States of America may have to save Greece themselves. Nevertheless, for the sake of the European project and frankly the stability of Greece we should be optimistic that a deal will be struck on Monday, which will calm the situation…at least until the next episode of the Greek saga when the summer holidays are over! To be continued…
Constantine Levoyannis is Senior Consultant in FTI Consulting’s energy team in Brussels and Hans Hack is Managing Director and heads the financial services team.