When is a default not a default? Greece finds itself not so much "in default", but "in arrears" on the €305 million payment due to the International Monetary Fund (IMF) last Friday. It has used a little known IMF provision which allows the bundling of several payments due in a month, a total of €1.6 billion. Unorthodox, but permissible, the IMF says. There are "deadlines" and "deadlines". Now the real crunch will be the end of the month. Meeting that, however, remains impossible without the unfreezing of the €7.2 billion promised from the European Commission, European Central Bank and IMF under Greece's second bail-out plan.
In the meantime Prime Minister Alexis Tsipras has returned from Brussels to Athens to mend fences with irate members of his Syriza party amid increasing talk of a snap election. Despite optimism last week from both Tsipras and commission president Jean-Claude Juncker about a compromise , both sides have been out waving different, incompatible rescue plans at each other. Tsipras argues for a new 47-page programme, while on Monday German, French, IMF and ECB leaders in Berlin set out their latest demands.
The main sticking points remain politically very difficult demands on Greece for further deficit trimming by cutting pensions, raising taxes on electricity, and reforming labour markets (ie, wage negotiations and making it easier to lay off workers). These differences are expressed as requirement by the lenders for a primary surplus of 1 per cent of GDP this year, progressively increasing to 3 per cent in 2017. Greece has offered 0.8 per cent this year, and 1.5 per cent in 2016. That should not be an unbridgeable gap.
But difficult as such demands are, the current hiatus is merely the backdrop to the next, if anything, bigger challenge: the current bailout expires at the end of the month and will need to be followed by further negotiations on a third rescue package. The international community will then have to come to terms with the hard reality that the country’s debts – €320 billion – are simply unsustainable and can not realistically be repaid without beggaring the country. Press reports suggest that the IMF has been quietly, so far unsuccessfully, pressing the EU to consider a restructuring or writedown. While understandable that EU states are reluctant to countenance the prospect publicly for fear of hardening Greece’s position, such a debate must not be put off for ever.
Tsipras’s insistence, however, that he has a democratic mandate for resisting further cuts and his apparent belief that it can be reinforced and negotitating hand be strengthened by an election will cut little ice with EU capitals. “That may be your democratic mandate, Mr Tsipras, but we answer to a different electorate.” The danger is that an election, while raising the volume of debate, will leave us exactly where we are now.