In World Economy News 27/04/2015
The eurozone’s patience with Greece is running thin and long-held taboos are starting to crumble.
European officials said over the weekend that at a meeting of the bloc’s finance chiefs, a small band of ministers suggested the once unthinkable: discussing a “Plan B” in the event that talks on continued financing for Greece fail.
The idea, raised by ministers from Slovenia, Slovakia and Lithuania, was quickly rejected by the group’s chairman, Dutch Finance Minister Jeroen Dijsselbloem, according to officials present at or briefed on the Friday meeting. But their push into one of the remaining no-go areas after five years of debt crisis shows the extent to which many of the eurozone’s decision makers no longer believe a deal on new bailout aid for the government in Athens can be sealed before the old one expires at the end of June.
“What my discussion was about is what we will do if…the new program will not be achieved in time for Greece to be able to finance itself and improve liquidity,” Slovenia’s Dusan Mramor said.
Negotiations on a list of overhauls and spending cuts that Athens must implement in return for sustained aid have barely gotten off the ground since February. And the government of Prime Minister Alexis Tsipras now looks set to blow through an end-of-April deadline to get agreement on the new measures.
With time running out, Mr. Tsipras held phone calls with German Chancellor Angela Merkel and Mr. Dijsselbloem on Sunday to discuss speeding up the negotiations, a senior Greek official said.
The official added that representatives from Greece and the country’s creditors–a team also known as Brussels Group–would convene via teleconference Monday.
The prospect of not reaching a deal in time, though, is putting policy makers in an uncomfortable spot: preparing for the default on a EUR317 billion ($345 billion) mountain of debt that is mostly in the hands of their governments, and a potential exit of Greece from the common currency. Since 2010, eurozone governments have lent Greece more than EUR180 billion, a figure that doesn’t include their contribution to the International Monetary Fund’s loans or their central banks’ growing exposure to their Greek counterpart.
Until now, contingency planning has happened in secret, with governments and institutions drawing up their own scenarios without much coordination or communication–even though an effective response would clearly require both.
Any indication that such documents were moving from drawers in national finance ministries onto the common negotiation table could easily trigger a chain reaction leading to an unwanted outcome.
Germany’s finance minister, Wolfgang Schäuble, explained that dilemma Saturday, when he was asked about his own country’s contingency planning.
“Of course there’s sufficient fantasy to imagine what kinds of things could happen” if no deal on Greece’s bailout can be reached, Mr. Schäuble told journalists. “But if…any responsible politician were to answer this question with ‘yes,’ we know what would happen. If he answered it with ‘no’…then we know that you won’t believe me.”
Germany’s most detailed plans for a Greek default on the eurozone stem from 2012, when two rounds of national elections risked leaving the country without a functioning government. At the time, Berlin, the European Central Bank and the European Commission drafted a meticulous road map for returning Greece to the drachma, ranging from Greece’s emergency financing needs to the logistics of introducing new notes and coins, officials familiar with the plans said at the time.
That proposal would still form the basis of any 2015 reaction plan. But this time around, policy makers are also considering options in which Greece would default but remain in the currency union.
Behind the scenes, pressure is building on the government in Athens to start thinking about capital controls that could break a sudden acceleration of deposit outflows from its banks, according to officials familiar with the negotiations between Greece and the institutions overseeing its bailout.
“A Plan B can be anything,” Slovakia’s Mr. Mramor said.
The growing willingness to talk about contingency plans shows how little the two sides have converged since Greece’s left-wing government was elected in late January. At Friday’s meeting, this led to clashes between Greek Finance Minister Yanis Varoufakis and representatives of countries that don’t usually take the lead in bailout negotiations.
When Mr. Varoufakis set out plans to introduce an extra monthly pension payment for the poorest retirees, he was attacked by Slovakia’s Peter Kazimir, who just last week fought off a similar initiative in his own country, according to an official present.
The push for Plan B discussions came from three countries that all spend less on social security than Greece. And the finance ministers of France and Italy–two states that have traditionally taken a softer line of austerity policies–also pressured Mr. Varoufakis to agree to the conditions of the current EUR240 billion bailout.
“Germany didn’t have to speak so much, because the others did the work,” said an official briefed on the talks.
Yet it was Mr. Schäuble who indicated how quickly even the loosest Plan B can turn into Plan A–by likening preparations for a potential Greek default to the reunification of Germany, a process that began with the fall of the Berlin Wall in 1989.
“If I had said in advance that we had a plan for reunification, everyone would have said the Germans have gone completely mad,” Mr. Schäuble said. The former German Democratic Republic adopted the deutsche mark, Germany’s currency before the introduction of the euro, in 1990.
