The big achievement of Tsipras’s proposal is to sow division

10/7/2015

By Wolfgang Münchau

Do not take this deal for granted — if Greece’s creditors want it to fail, they will find a way

I do not have the foggiest whether these latest Greek proposals will be enough to secure a deal. There are still very big obstacles to overcome. But Alexis Tsipras has achieved something that has eluded him in the past five months: he has managed to split the creditors. The International Monetary Fund insists on debt relief. The French helped the Greek prime minister draft the proposal and were the first to support it openly. President François Hollande is siding with Mr Tsipras.

And that changes the stakes for Angela Merkel. If the German chancellor says no now, she will stand accused of taking reckless risks with the eurozone and the Franco-German alliance. If she says yes, her own party might divide similarly to the way the British Conservatives divided over Europe. I have always predicted that the moment of truth for the eurozone will come eventually. It will come this weekend.

The financial markets seemed to have made up their mind that a deal will happen. But beware the many landmines on the path to a deal. Of those, only the first has been sidestepped with Mr Tsipras’s offer. What he is now proposing is, economically, not fundamentally different from what he, and the Greek electorate, rejected in Sunday’s referendum — but it works politically for him. The phase-in period of some of the harder measures is longer. And if there is a deal, there will have to be an explicit reference to debt relief this time. The IMF insists on it. And even Donald Tusk, the president of the European Council, says so. This is an important development, but it is not clear that all creditors will, or can, agree.

By tomorrow, the technical people and the finance ministers will need to discuss whether the Greek numbers add up. The answer is almost certainly no, not least because of the rapid deterioration of the country’s economy. The imposition of capital controls and bank withdrawal limits brought most economic activity to a standstill. Any macroeconomic adjustment programme will have to start with a realisation that the situation is worse today than two weeks ago. The Greek list takes account of this in terms of slower adjustment periods. This is economically sensible. But Ms Merkel has already said she wanted this problem taken care of through additional austerity. For a programme to be agreed, one side will have to back down here.

On top of this, there is now the acute problem of an insolvent banking system — one that is totally reliant on a special lifeline from the European Central Bank called emergency liquidity assistance. The ECB will find it hard to increase ELA. So apart from agreeing on a macroeconomic stabilisation programme, European leaders will this weekend need to answer the more immediate question of what to do with the Greek banks.

This is possibly the single most complicated question because there are no easy and fast answers. What may have to happen is that the number of banks will need to shrink to three or two, and that depositors may have to be “bailed in”. I cannot see that the creditors would agree to a further bank restructuring programme, in addition to the €53.5bn in new loans currently under discussion.

And then there is the matter of trust. Do all the creditors trust Mr Tsipras to deliver? The referendum destroyed the little remaining trust in him. The Greek prime minister’s appearance in the European Parliament on Wednesday showed that the only politicians who were genuinely sympathetic to him were on the far left and the far right.

And finally, consider the possibility of a political accident. If Ms Merkel accepts a deal, the Bundestag will almost certainly vote yes. But will that also be the case in all the other creditor countries? The Dutch, like the Germans, are extremely hostile. Would the Finnish accept a third programme? The Baltics? The Slovaks?

And even in Germany, a deal would be hugely controversial. Both her own Christian Democratic Union and the Social Democratic party, part of the governing grand coalition, would prefer Grexit. A deal would be very hard to sell for both of them. Ms Merkel would be taking a big political risk. Should this programme derail, she would spend the next two years dealing with the Greek question, and face growing hostility in her own party.

The reason I am not yet taking this deal for granted is that, if the creditors want this to fail, they will find a way. I can see why distant observers might be more optimistic now. Looking at this from up close, I still see a lot of landmines out there, and a lot of people who would love nothing better than to hear a loud bang.

Πηγή

Σχετική δημοσίευση εδώ.