Greece slides towards the euro trapdoor

20/3/2015

Unless Syriza changes tack, it is leading Greek people out of the single currency

f there is one thing all sides in the Greek crisis publicly agree on, it is that Greece should stay in the eurozone. Yet with every day that passes without the Greek authorities and their creditors even finding a common basis for discussion, that exit creeps ever nearer.

The leaders met this week at an EU summit, again without agreement on how Greece can implement reforms that unlock lending from the troika of the eurogroup of finance ministers, the International Monetary Fund and the European Central Bank. What is becoming ever clearer is that, whatever the faults of the creditors, the Greek authorities are proving themselves to be unreliable negotiating partners.

Since the Syriza government was elected in January, the contours of a deal have been clear. In return for structural changes to release suppressed potential in the Greek economy, the troika will first relax primary fiscal deficit targets to encourage growth and then discuss a writedown of the overhanging debt stock. In the few months that it will take to negotiate this, the ECB will keep the Greek banking system afloat by permitting the Greek central bank to supply liquidity.

The problem is that nearly two months after Syriza took office, negotiators are barely any closer to a solution. Yanis Varoufakis, Greece’s finance minister, has proved himself an excellent self-publicist but not a reliable interlocutor. Some of the list of proposed reforms he produced to push the talks forward two weeks ago, including a proposal to wire up tourists as undercover tax inspectors to hunt for VAT fraud, have bordered on the eccentric. It is little surprise that his eurozone counterparts are often forced to bypass him and deal directly with Alexis Tsipras, the prime minister.

Ominously for Mr Tsipras, the chorus of discontent has spread beyond the well-known discontents such as Wolfgang Schäuble, the German finance minister, and Jeroen Dijsselbloem, his Dutch counterpart, who chairs the eurogroup. His government has alienated officials who have been much more sympathetic to its aims.

The European Commission, for example, in the person of Pierre Moscovici, its economics head, has attempted to play honest broker. But not only has the commission found informal discussion papers being misused as negotiating tools, it has been dismayed by the inability of the Syriza government to keep promises to consult before bringing in new legislation.

This week, amid the now familiar rousing rhetoric about defying foreign technocrats and without first consulting the troika, Mr Tsipras introduced a “humanitarian bill” in the Greek parliament increasing government spending. Mr Moscovici was forced into objecting on principle to the writing of a bill, the aims of which he supports.

Greek exit from the eurozone should not be in question at all. Such an outcome would do little to solve Greece’s underlying problems, which stem from a chronic lack of productivity. And while the financial markets seem to have faced the prospect of a Greek exit with equanimity, there can be no doubt that the first departure of a member would increase speculation about further departures, making it harder to deal with future debt problems.

The paths forward both in the short and the long term are clear. They involve keeping the Greek financial system functioning — and depositors and investors confident of a solution — while a deal is worked out. But with every reversal of direction and empty act of defiance, more deposits trickle out of the Greek banking system, and the exit everyone involved professes to abjure comes a little closer.

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