Creditor Confusion Over Greece

The apparent stalemate between Europe and Greece over Greek debt was nicely summed up by Clive Crook at Bloomberg View as representing not just two sides of an argument at loggerheads, but one side at loggerheads with itself:

Suppose for a moment that the European Union gets what it’s demanding from Greek Prime Minister Alexis Tsipras. It doesn’t look as though that will happen, but let’s imagine that Tsipras surrenders. How long, I’m wondering, would this smell like victory?

Tsipras has agreed to the EU’s new, less demanding targets for Greece’s primary budget surplus over the next few years. The sticking point is that the measures he would use to hit those targets aren’t enough.

Instead of raising the rate of value-added tax (a kind of sales tax) and/or collecting it on a wider range of goods, Tsipras says he’ll attack tax evasion and fraud. That won’t raise enough money, says Europe. The EU wants more cuts to public spending on pensions as well, which Tsipras refuses to consider….

[If Tispiras did go along] [w]ould this be sufficient to put Greek public finances on the path to sustainability? The sustainability of Greek debt, you may recall, is Europe’s main purpose in all this.

The answer is no, it wouldn’t — and my authority here is the International Monetary Fund, one of Greece’s main creditors and partner of the European Commission and European Central Bank in what used to be called the troika.

The fund’s chief economist, Olivier Blanchard, published an article on Sunday which said that for the new budget targets to achieve sustainability, significant new financing and debt relief would also be needed. But Europe won’t discuss debt relief until Greece has put its public finances on a sustainable footing.

The IMF says Greece can’t put its finances on a sustainable footing without more debt relief; Europe says it has to. That’s the agreed position of the creditors. Clear?

Beyond that, even if the IMF reversed itself and went along with the EU’s recommendations, would Tsipras bend the knee, knowing it wouldn’t work? If he did:

Chances are good that it would be his last act as prime minister. He’d be breaking election promises and, aside from that, would enrage the faction of his own party that thinks he’s already conceded too much. Good riddance, you might say. Yet with Tsipras gone, would the next Greek government be any more pliable — any more inclined to maintain the new rate of VAT or persist with the new round of pension cuts? I see no reason to think so.

Indeed, the EU seems to be on a course designed to produce a lurch in Greek politics favorable to no one other than the neo-Nazi Golden Dawn movement. At some point, the “tough love from the creditor” attitude in Europe towards Greece needs to yield to something that can be supported by a stable government in Athens.

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Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.