Analysis:Water cannons on the streets, eggs lobbed at the German embassy, paintballs fired at public buildings, riot police at the front door of the European Commission.
Marching workers snarled up the afternoon traffic in Brussels yesterday as protesters clashed with police in Athens and Madrid. Their righteous message: L’austérité n’est pas la solution, l’austérité est le problème. Austerity is the problem not the solution.
They don’t quite see it that way at the top of the EU. It was only last week that the Commission snapped back at an assessment from the International Monetary Fund which suggested that both and fund and Europe had underestimated the impact of fiscal retrenchment on economic growth.
According to the Commission, the acknowledged recessionary ripples of austerity in the weakest countries were made worse by the turmoil in bond markets. The tension over the pace and scope of the austerity drive in stricken countries is one of the defining dramas of the debt saga. Although the authorities have slacked off a little on Spain and Portugal, the dogma of fiscal rectitude remains as strong as ever.
Even as Europe and the IMF wrangle over the next fateful step for Greece, the fact remains that the country’s bedraggled MPs have just voted in another €13.5 billion austerity plan for 2013 and 2014. An unpublished draft report by the Commission suggests a further €4 billion retrenchment is in prospect for 2015 and 2016.
Fatalistic distress
Whether Greek society, already in its fifth successive year of recession, can withstand that degree of sustained budgetary consolidation is anyone’s guess. Greek colleagues exude fatalistic distress. Some in the back corridors of the Berlaymont building, headquarters of the Commission, say quietly that it is manna for the nasty far-right chieftains of the Golden Dawn movement.
But the hardliners of the euro zone are still defiantly in command. Although Europe has agreed in principle to extend Greece’s deficit-cutting target by two years, the creditor countries don’t want to pay for it with increased rescue loans. An additional €32.6 billion may be needed, not the kind of money anyone would readily hand over to risky Athens. This is on top of the €31 billion that Greece needs imminently to prevent an uncontrolled sovereign default.
That’s but one element of the conundrum. The other centres on Greece’s ever-expanding debt mountain, a source of escalating friction between Europe and the IMF. The fund wants European governments to bear losses on their loans to Greece to help the country achieve a “sustainable” debt by 2020. This is sacrilege to Germany and its main allies. They may be prepared to cut interest rates to zero and extend loan maturities but they are not willing to write off their receivables.
Few serious observers believe that would suffice. Thus IMF chief Christine Lagarde rolled her eyes the other night when Jean-Claude Juncker of Luxembourg said finance ministers might push back the debt deadline to 2022. This prompted sniggers at a press conference, leading Juncker to say he was not joking at all.
The ministers resolved to return to Brussels next Tuesday to settle the matter. Their problem is this: by delaying the debt target, they hope to avoid politically toxic loan write-downs for Athens. For Greece, however, this only prolongs the pain.
Buying time
While there is some confidence in Brussels that something approaching an acceptable fudge can be formulated on time, the reality is that this will be yet another exercise to buy time.
Diplomats from outside the euro zone readily argue that the only way for Greece to remain in the single currency may be for it to receive outright fiscal transfers or deep loan “haircuts”, the effect of each being more or less the same.
The result is drift. The logical conclusion from Juncker’s remarks is that the Greeks will have to plod on for a decade before control is asserted over their debt. In a land still skirting on the edge of disaster after three years of chaos, this assumes nothing goes wrong.
Talk of a second Greek bailout goes back to a secret meeting in Luxembourg in May last year. In essence, the current talks represent a third effort to get it right.
Although Greek leaders bear a huge portion of the blame, the present effort by their European masters looks like yet another attempt at a short-term fix. There will be more of this – and more protests.
