ANALYSIS:Greek debt crisis seems to be spinning out of control, which carries grave risks for Ireland
AFTER ANOTHER week of agonising turmoil, the Greek debt emergency looks more and more like it is spinning out of control. Whether Europe’s leaders can avert disaster remains to be seen, but this increasingly volatile scene carries grave risks for Ireland.
Having lost the confidence of its EU-IMF bailout sponsors on top of a collapse in investor support, Greece faces an immediate financial crux and a longer-term one too in view of its mountainous debt. This threatens both the viability of its €110 billion rescue plan and of Europe’s no-default dogma, adopted in the aftermath of the Lehman Brothers tumult in 2008.
In the spotlight and off-stage are a host of international actors, whose political and financial interests vary widely. This makes resolution all the more difficult, as each has much to lose in the debacle.
Widely perceived to have stopped implementing its bailout reforms months ago, Greece has been on the rack for weeks as its European and IMF backers seek to extract deeper cuts from its beleaguered government and a faster privatisation plan. There have been plenty of promises from Athens but comparatively little execution, leading to pressure from Europe and the IMF for a political consensus on a fundamental overhaul of its economy.
That remains elusive, magnifying the immediate pressure on the country and its sponsors and increasing the potential for a dangerous spill-over into weakened countries like Ireland.
Not only does Greek premier George Papandreou need €12 billion under its existing plan next month to keep the lights on in Athens, but the lack of market confidence means his government will not be able to return to private markets next year as foreseen in the rescue plan.
In spite of rampant politicking over an ongoing “troika” review, payment of the €12 billion was deemed more or less inevitable until a few days ago. Now, however, it emerges that the IMF is threatening not to release its €3 billion portion of the aid because the country’s refinancing capacity is not guaranteed for 12 months.
That hard-line position is in keeping with the IMF rulebook. Yet even while the IMF is in caretaker hands following the ignominious departure of Dominique Strauss-Kahn, the fund’s stance also looks like an attempt to prod difficult decisions from its squabbling partners in Europe.
This is perceived to reflect increasing IMF frustration at the monumental standoff between the euro zone’s political leadership, in which a move to ease Greece’s debt burden is gaining support, and that of the European Central Bank (ECB), which recoils in horror at the very notion. “We are at the end of the tunnel but there is no light,” said a diplomat who is involved in the drama.
Crucial here is the political interest of powerful people such as German chancellor Angela Merkel and many of her counterparts, who are deeply reluctant to expand their support for Greece. The vulnerability of European banks to any losses on their investments in euro zone sovereigns is another factor.
Important too is the ECB’s agitation against anything — ie any hint of sovereign default — which might undermine market confidence in the euro zone’s many weaklings or damage its own over-extended balance sheet.
The upshot of all this is endless euro zone haggling over the next step for Greece, very little certainty over what actually happens and a sense of perpetual crisis overshadowing the entire European body politic.
For Dublin, the risk increases by the day that the Government could be swept off its already difficult course. Although the Irish bailout is predicated on a return to markets in the second half of next year, the Greek chaos gives ample reason for serious concern.
