Greek saga at end of road as patience and options run out

The long and increasingly dangerous standoff between Greece and its creditors is coming to a head. With its economy at a halt after years of turmoil and deposits seeping from banks at a drastic rate, Greece needs a quick deal to ensure it can repay €1.5 billion to the International Monetary Fund in June and avert bankruptcy in July.

Time is short. Although the European Central Bank resolved two days ago to increase emergency aid to Greek banks by €200 million to €80.2 billion, Moody's rating agency says the banks have lost more than €30 billion in deposits since December. Distress is everywhere. On top of the banks' perilous position is a marked decline in tax payments by Greeks, a further portent of disturbance and despair. This is to say nothing of the social crisis in the country.

Four months have passed since Alexis Tsipras’s hard-left Syriza movement swept to power with ardent promises of a new beginning for Greece, an end to austerity and the “humiliation” of troika oversight, and a write-down of the vast national debt. Well, it never happened.

Amid deep uncertainty over the government’s actual stance and concern it was attempting in an unscrupulous fashion to game talks with lenders, relations with creditors worsened as steadily as the public coffers emptied. Instead of trust and co-operation, there is rancour.

Elements within the governments of Germany, Spain, Portugal and other euro zone countries are said to argue for the removal of Greece from the single currency. Indeed, public warnings of bankruptcy and debt default are so frequent at this point they hardly convey the force of jeopardy engulfing Greece. The final repositories of cash are being searched. Though no one is saying exactly when the Athens treasury will run out of money, there may be enough to get through June but no further. There is no certainty, however, that all IMF obligations can be met next month.

This must stop. If the engagements thus far have gone around in circles, the time for aimlessness and delay has passed. Not without reason, there's been no end of criticism in Europe of the Tsipras administration and of his voluble finance minister Yanis Varoufakis. But are we really at the end of the line?

Debt forgiveness

European lenders have already proved the point that they won’t be granting easy debt forgiveness to Syriza in Greece, or to Podemos in Spain if it made copycat claims after a successful election, or indeed to Sinn Féin. They have shown too that renaming the troika as the Brussels Group is purely cosmetic, and that further loans would come with onerous conditions. There is no doubt over their unwillingness to grant soft money or money for nothing: the last payment to Greece was 11 months ago. In sum: no easy ride for Greece.

As one wry Brussels figure puts it, some kind of a “bedraggled rabbit” might be pulled from a hat eventually. But what? Give and take is required from all sides. Criticised for not articulating exactly what his net position is, Tsipras must do so quickly. He has conceded on crucial red lines vis-à-vis debt writedowns and external supervision, but if there are other lines he really can’t transgress he should make that clear.

As I understand it, there are two points of particular sensitivity: further cuts in pension payments; and new measures which would allow big employers to eliminate large numbers of jobs without ministerial approval. If Tsipras simply can’t do these things after conceding on other fronts, he shouldn’t be forced to. Still, he might have to provide alternatives.

Yet serious difficulties remain. At issue immediately is the release of the final tranche of loans under the second Greek bailout. But Greece seems so far off track right now that yet another loan package will be needed. Any such move, in turn, presents the prospect of parliamentary votes in countries in which politicians already have grave doubt over the viability of Greece’s membership of the euro and over its capacity to repay loans granted.

There is little prospect of a settlement before EU leaders gather in Brussels for a summit on June 25th. An arrangement may be then made avert disaster in July but no one would go so far as to say a durable solution is in play. That there is contingency planning going on for a “Grexit” does not seem to be in doubt. But is that the best solution? At the humanitarian level or viewed from the perspective of economics, financial markets, politics or geopolitics, a departure from the euro would bring only further trouble.