The latest phase of the Greek debt saga is playing out in an atmosphere of profound uncertainty over the outlook for the heavily indebted country and its membership of the single currency.
After rancorous exchanges yesterday at a finance ministers’ meeting in Riga, German chancellor Angela Merkel called for calm and understanding in the quest for a deal but said, “we don’t know if this will work out.”
Such doubt is widespread throughout the euro zone and runs the gamut between major and minor powers.
While high-level politicians tacitly acknowledge a degree of pragmatism on the part of Greek prime minister Alexis Tsipras, there is little confidence in the rest of his administration.
That Greek finance minister Yanis Varoufakis received a drubbing in Riga underscores the point.
But can the funding gap be bridged? No one seems to know.
As Greece runs ever closer to bankruptcy, Tsipras needs to cut a quick deal on fiscal reforms to secure yet more European loans so he can make looming IMF repayments.
No agreement is yet in sight. Yet there are tentative signs that Europe might allow Athens some fiscal leeway in the form of a lower primary surplus target, the surplus to be achieved before the costs of servicing its massive national debt. That’s about as good as it might get this time out, together with modest interest cuts on existing loans and longer maturities.
Whether such manoeuvres – and whatever other small concessions as are thrown into the pot – can be sold by Tsipras is uncertain at best. His critics in Europe say he over-promised in the election campaign and since, making it very difficult now to backtrack.
Deep anxiety
There is deep anxiety in other countries about the potential for political, economic and social chaos in Greece if the Syriza coalition falls apart. Similar fear surrounds the prospect of the country dropping the single currency – and all financial risk that would carry throughout the euro zone. Notwithstanding public declarations of confidence in anti-crisis “firewalls”, such a development would mark a political disaster for Europe.
All of this comes alongside the risk of Britain leaving the EU if David Cameron’s Tories prevail in the election there next month. Senior Europeans speak of a “nightmarish” outlook, with fundamental tenets of the union under threat.
Still, Greece’s lenders are in no mood for debt forgiveness. Thus the stakes heighten every single day.
