Greece Hosts Its Lenders—Yes, It's Awkward

Greece's Finance Minister Yannis Stournaras speaks at Parliament in Athens on July 7. Photograph by Kostas Tsironis/AP Photo

When Greek Finance Minister Yannis Stournaras walks into a meeting with the country’s lenders on Thursday, any doubts that he has taken on one of the world’s toughest jobs will be dispelled.

Stournaras must convince representatives of the European Commission, the European Central Bank, and the International Monetary Fund that Greece can hit this year’s fiscal targets, speed up dozens of delayed reforms, and find at least €11.6 billion ($14.1 billion) in savings over the next two years. Only then will there be a chance of the so-called troika approving the disbursement of the latest tranche of the €130 billion, second Greek bailout approved in March.

Greece must achieve all this while its economy is in free fall. Prime Minister Antonis Samaras, who leads a three-party coalition formed last month, said on July 22 that the country is experiencing its own “Great Depression.” The economy is expected to contract as much as 7 percent this year—far more than the troika of lenders expected when they drew up Greece’s latest loan agreement.

Stournaras is likely to use the continuing downturn and the fact that Greece’s state machinery came to a virtual standstill as a result of the two national elections held in May and June as bargaining chips in his bid to convince the troika to cut Athens some slack in the report that officials are due to compile by the beginning of September. Euro zone leaders and the IMF board will rely on this document to decide whether to continue funding Greece.

“It’s very important for everyone in Europe to understand that the two elections led to time for implementing reforms being lost,” says Jorgo Chatzimarkakis, a member of the European Parliament with Germany’s pro-business Free Democratic Party (FDP).

Chatzimarkakis, who has Greek roots, cites the fact that the government sent in riot police to end a nine-month labor dispute at the Halyvourgia steel plant on the outskirts of Athens and that Samaras has banned his ministers from going on holiday as evidence that the coalition is “willing to pick up the pace.” The government has been trying to counter the impression that Greece is ignoring its targets. It announced this week the closure of 21 public organizations and revealed that the total wage bill at the 12 biggest state enterprises has been halved since 2009, due to reductions in salaries and staff.

“If Greece can get across the message that it’s making a new start, then the troika cannot ignore this,” he says. “By the time the troika report is ready at the beginning of September, a lot could have changed for the better. It is vital that the troika gives a true reflection of this situation in its report.”

Greece, however, finds itself operating in a very negative climate. Several European politicians and press reports have suggested over the past few days that patience with the country has worn thin—particularly in Germany—and that its days in the euro zone could be numbered. One German politician proposed that the Greek government begin paying half of state pensions and salaries in drachmas, while Economy Minister and FDP leader Dr. Philipp Rösler said a Greek euro exit no longer carries a “fear factor.” Chatzimarkakis, who is a member of the same party as Rösler, called the comment “reckless.”

“It is no coincidence that all the bad news about Greece’s failings and the speculation linking the country to a euro zone exit emanates from Germany,” he said. “There are strong forces in the media and politics that want a Greek exit for a number of reasons. Unfortunately, the German government does not react strongly enough.”

The fact that Germany will hold its federal elections next year has not gone unnoticed in Greece, where many of the comments from Berlin are seen as being designed for domestic consumption in the buildup to the campaign. Chatzimarkakis, though, says that a more immediate development in Germany has greater significance for Greece.

Germany’s Constitutional Court in Karlsruhe has delayed until Sept. 12 its decision on whether the European Stability Mechanism, a permanent bailout system, complies with German laws. Without the ESM, the euro zone lacks a strong firewall to protect major economies such as Spain and Italy from the possible fallout of a Greek euro exit. Chatzimarkakis says Greece, which wants its loan program to be extended from 2014 to 2016, should exploit this fact during its talks with the troika.

“The danger of the euro zone breaking up in the absence of the ESM is higher than once it is created,” says Chatzimarkakis. “This gives Greece a better negotiating position over the next few weeks, especially with regard to gaining more time to complete its adjustment.”

That’s just one more thing for Greece’s finance minister to put on his to-do list.