Greece Reaps Euro Goodwill in Break From Crisis Scoldings

Greece Reaps Euro Goodwill in Break From Past Crisis Scoldings
During a June 2011 protest, a young man demonstrates against austerity cuts in front of the Greek parliament building in Athens. Photographer: Kostas Tsironis/Bloomberg

Greek Finance Minister Yannis Stournaras arrived at this week’s debt-crisis talks like his predecessors often did, without all the budget cuts demanded by creditors. Unlike them, he left with prospects for aid intact and public doubts on Greece’s future in the euro silenced.

The country emerged from the Sept. 14-15 meeting of European finance chiefs in Cyprus with a chance to gain extra time to narrow its spending gap. Officials calculated that a confrontation with the Athens government would drive it further off track and shatter newfound market confidence in the management of the crisis that has lasted almost three years.

Creditors led by Germany and the International Monetary Fund may now grant Greece more leeway to narrow its deficit after their austerity-first policy helped mire the country in a fifth year of recession, and two Greek elections produced a shaky governing alliance of pro-euro politicians under constant attack from the anti-bailout opposition.

“Greece has already produced a huge effort but will have to continue to do so,” IMF Managing Director Christine Lagarde told reporters during the meeting in Nicosia, the Cypriot capital. “There are various ways to adjust. Time is one. That needs to be considered as an option.”

Fiscal Cliff

Stournaras, Greece’s fifth finance chief since the country stumbled off the fiscal cliff in late 2009, is seeking to win the release of aid blocked since June. He showed up in Nicosia days after Prime Minister Antonis Samaras’s three-party coalition failed to agree on 11.5 billion euros ($15.1 billion) of savings in 2013 and 2014.

Samaras, head of the New Democracy party, faced resistance to planned cuts in wages and pensions from socialist Pasok and Democratic Left. It fell to Stournaras, an Oxford University-educated economist close to Pasok, to convey the news that Greece hadn’t done its full homework, and to make a renewed plea for two extra years to meet fiscal targets.

Past Greek shortfalls had met with instant rebukes from creditors. They culminated in a threat in November 2011 by German Chancellor Angela Merkel and then-French President Nicolas Sarkozy to expel the country from the supposedly “irrevocable” euro.

Punishments for fiscal misbehavior included a summons in May 2011 to then-Greek Finance Minister George Papaconstantinou to a Luxembourg chateau for an unpublicized meeting of select finance chiefs to address Greece’s budget slippages.

Street Protests

A month later, as street protests raged in Athens, euro officials welcomed Evangelos Venizelos to the job of Greek finance minister by delaying the green light for a 12 billion-euro payment until Greek lawmakers endorsed further austerity.

In February 2012, Venizelos confronted another aid delay, this time as Greece’s caretaker government hadn’t delivered 325 million euros in extra savings.

“We can’t live with this system while promises are repeated and repeated and repeated, and implementation measures are sometimes too weak,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs euro finance meetings, said then.

This time, there was no blowup. Officials from Austria and the Netherlands echoed the IMF in speaking of extending the deficit-cut timetable, making Greece the latest beneficiary of a European tilt against austerity that gained strength with the election of Socialist French President Francois Hollande in May.

‘More Time’

“More time to reduce the deficit has always been the position of the Netherlands, but more money is not needed,” Dutch Finance Minister Jan Kees de Jager said in an interview. Saluting Greece’s budget plans as “very ambitious,” Austria’s Maria Fekter offered to “give the Greeks the time they need, but there probably won’t be more money.”

With Europe’s policy makers focusing on the creation of a centralized banking regulator and the startup of a permanent rescue fund to shore up distressed nations that also include Ireland, Portugal, Spain and Cyprus, Stournaras summed up the experience in Nicosia as “positive” and described Greece as “a small part” of the talks there.

Germany’s public shift in tone dates to Merkel’s Aug. 24 meeting with Samaras, when she sympathized with Greeks’ economic distress and said she reads a Greek media digest every day “because I want to know what is being said, felt and thought from the Greek point of view.”

Greece narrowed its deficit from more than 15 percent of gross domestic product in 2009 -- five times the European Union limit -- to 9.1 percent in 2011. The spending gap is due to shrink to about 7 percent of GDP this year.

Syriza’s Rise

The softening of the European and IMF approach follows the rise of Greek anti-bailout party Syriza, which overturned four decades of political dominance by New Democracy and Pasok in May and June elections to become the No. 2 party in the parliament.

Syriza leader Alexis Tsipras has called on the Greek government to boycott aid talks with creditors, saying “this austerity plan leads the country to bankruptcy, closer to a euro exit.” He said Samaras’s bid for another two years to meet deficit-reduction goals was “like asking for more rope to hang ourselves with.”

While ruling out an increase in the 240 billion euros in aid pledged for Greece since 2010, the euro area and IMF signaled an awareness that diplomatic defeats for the Samaras government in Europe risk strengthening Syriza and weakening the Greek austerity push.

“The country has really serious, serious problems and it will take a lot to get this adjustment done,” Guntram Wolff of the Brussels-based Bruegel research institute said in an interview in Nicosia. “You cannot just do it with a stick. You need to provide incentives for the country to grow.”

Verdicts on Greece’s fiscal plans and the release of the next aid tranche were put off until October, when they may feature at a mid-month meeting of European heads of government.

For now, Greek euro-exit talk is off the agenda. “You were perfectly right by excluding the scenario that Greece would leave the euro area,” Juncker told a reporter. “That’s not an information but a confirmation.”

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