Independence Day

Illustration by Manos Symeonakis

Every year, Greece celebrates its independence on March 25. It marks the date when the revolution against Ottoman rule began in 1821. This March 25, though, the proposition of Greece standing on its own will not seem so attractive. Should the European Union leaders’ summit on March 24-25 end in disappointment — as many expect it to — debt-stricken Greece will be left dangerously isolated.

Prime Minister George Papandreou has spent the last few weeks furiously trying to cultivate contacts with his European counterparts — including German Chancellor Angela Merkel, French President Nicolas Sarkozy and European Council President Herman Van Rompuy — in the hope they might be able to sway opinions ahead of the March 25 summit and a meeting of leaders from eurozone countries on Friday, March 11.

Athens has two basic aims and one overarching goal. It wants EU leaders to agree to the repayment period for the 110-billion-euro emergency loan package being extended. As things stand, Greece will have three years from 2013 to repay its loan — to get out of this particular financial straitjacket, Papandreou’s government will need to pull off an escape act that Harry Houdini himself would be proud of. An extension of this deadline, possibly to seven years, makes sense for Greece’s EU partners unless they want to set Athens on the one-way road to default or debt restructuring.

The Greek government also wants the interest rate on the loan package, which has a fluctuating rate of about 4 percent and a fixed rate of 5.5 percent, to be trimmed. The Greek cause has received some notable backing in the last few days. European Economic and Monetary Affairs Commissioner Olli Rehn expressed his support for better terms for Greece and Ireland, which is borrowing at an even higher rate. “There is a danger we could overburden both countries with overly strict credit conditions,” he said.

Rehn’s fear of overburdening is perhaps Greece’s strongest card in this month’s negotiations as Papandreou can argue that without better loan terms, Athens will not be able to avoid default or restructuring, which would lead to a number of European banks that hold Greek bonds taking a hit.

Greece’s argument could be weakened by the fact that many leading economists and think tanks, such as the European Economic Advisory Group (EEAG) and Brussels-based Bruegel, believe that even tweaking the emergency loan arrangements will not be enough to prevent Papandreou and Finance Minister Giorgos Papaconstantinou having to ask private investors to accept a “haircut” on Greek debt.

Regardless of the gloomy predictions, the government has to at least be seen to be making an effort to reduce its debt burden. Sleepwalking toward debt restructuring or default without trying to find a way out that would not have repercussions on Greece’s borrowing abilities for years to come would be political suicide and a national embarrassment.

Beyond its two basic goals, Greece is hoping that the tackling of its debt problem will be incorporated into a comprehensive package for dealing with the current and any future crises in the eurozone. As crucial as a repayment extension and an interest rate reduction may be to the immediate economic viability of the country, the creation of an all-encompassing system to deal with debt and deficit transgressions would guarantee some longer-term stability for Greece.

As of 2013, it will be this permanent financial rescue system — the reformed version of the European Financial Stability Facility (EFSF) or European Stability Mechanism (ESM), as it will be known — that will provide Greece’s safety net while also putting up money to buy back Greek bonds. Apart from financial support, the presence of the ESM will ensure that Greece is not left isolated within the eurozone. If there is no permanent structure to ensure that each crisis in an individual member state is treated as a potential collective threat to the stability of the euro, then countries like Greece are in danger of being cast adrift from this island of security. Without the ESM, no automatic failsafe mechanism will kick in for countries in trouble. Bailout decisions will become even more politically charged and it will be much simpler for other eurozone members to cut their losses if they think Greece is a lost cause.

This is why Papandreou has been so eager to drum up support ahead of the conclusion of EU talks on March 25 — it is an Independence Day battle that he dare not lose.

The last few weeks have already given him a taste of what life might be like should this month’s talks end in disagreement: Issues that are a matter of survival for Greece have been relegated to mere bargaining chips in domestic or EU political machinations for other countries.

Events in Germany over the past few weeks are an example of how Greece’s interests can be crushed by the weight of day-to-day political developments in another part of Europe. Whereas Chancellor Merkel until recently seemed to accept the idea of improving Greece’s loan terms and pushing for the creation of an ESM with a strong effective lending capacity, she now finds herself caught up in a maelstrom of domestic developments that make such acquiescence extremely difficult.

Within a few weeks, Merkel has seen Axel Weber, the head of the Bundesbank (the German central bank), tender his resignation, her coalition lose a regional election in Hamburg and her own MPs vote against bolstering the EFSF. The chancellor is also braced for a potentially damaging ruling by Germany’s constitutional court on the reforms being discussed.

While Germany has been gripped by domestic concerns, other EU members — including Italy, Britain, Denmark, Finland and the Czech Republic — have expressed serious doubt about various aspects of the structure being put together.

It is, of course, all part of the inspiringly unique but sometimes infuriatingly labyrinthine process that defines the EU. This time, however, Greece will feel the consequences of any breakdown in the process more acutely than others. This March 25, the state of independence may suddenly seem a very lonely place to be.

Nick Malkoutzis

3 responses to “Independence Day

  1. “An extension of this deadline, possibly to seven years, makes sense for Greece’s EU partners unless they want to set Athens on the one-way road to default or debt restructuring.

    The Greek government also wants the interest rate on the loan package, which has a fluctuating rate of about 4 percent and a fixed rate of 5.5 percent, to be trimmed.”

    More and more people seem to think that all these political maneuvers are the key to getting Greece out of this mess we are in. I also sense that in this piece. But in my opinion it all comes down to one thing: Greece has to fundamentally redesign the way it has been running things for decennia, because they don’t have the money anymore to finance it and they won’t be able to borrow in the future for it.

    When this, admittedly enormous, task is not performed all the actions and inactions up till now will be just a stay of execution: the dreaded ‘haircut’ i.e. restructuring. But if Greece is not leaner and meaner, it will not be even helped or saved by that. Because it still will have to borrow huge amounts just to keep this system alive.

    A year has gone by and there still are no real structural changes that have been implemented. In fact, most required changes are not even out of the consultation stage, or are so watered down that not really much has changed.

    Too much energy is directed at shooting messengers. Firms like Moody’s have a lot of faults and their role in this crisis is far from innocent. But they still are fulfilling a valued roll for the ‘market forces’ which are supposed to lend Greece the billions it will need if nothing is changed here. The only way to get them out of the equation is by not needing to go to those ‘markets’ anymore. Not needing to borrow these huge amount of money.

    But how Greek politicians, and a majority of Greeks see the world of commerce and enterprises is shockingly illustrated by those 10 PASOK MPs who now call for legal action against Moody’s. Well that’s their good right and as long as they pay for it themselves they are welcome to it. But I understand they are also calling for a European Public Rating Agency? If they mean by that the ECB that regularly would come up with ratings about the credit worthiness of EU-countries, they have my blessing. Somehow I get the feeling though they are in fact calling for a Public replacement of the commercial rating agencies. And this is in line with the total distrust in everything that is not done by the state that is the mainstream opinion in this country.
    A political or ‘public’ rating agency? Manned by… politicians? Civil servants? And then telling ‘markets’ that they should invest their personal money into this country and not that? Do these MPs really think they can force foreign investors by law into handing over their money to Greece so Greece does not have to change its ways? I am afraid this is so.

    To far fetched? Well try and get an truly innovative idea of the ground here in Greece. If there is no tax number for it and therefor was thought of before by a civil servant it just can not be done. And this system is still totally intact.

    A year has gone by and time is getting short. Will this coming independent day be followed by more? Some people seem already of the opinion that Greece has no independence left and are doing their best to sculpt the reality to their opinion. Others still cry and scream foul and go on like always. Last year was the last Independence Day Parade in my village since about 1000 dimoses are now gone (although all the civil servants are still on the payroll, of course). Maybe next year we all look back and will remember this 25th of March as the last of the Greek State as we know it?

    • I think everybody would agree that some changes are not happening quick enough. At the same time a lot of people have already being paying a very heavy price. So, state inefficiences are doubly galling. Now we now that the interest rate will be cut to 4.2% and the repayment period extended to 7.5 years, it will be interesting to see how the government uses this space to breath. The better loan terms will save Greece 6 billion euros, which is a drop in the ocean when you consider its debt will be close to 350 billion euros by 2013. So, it puts even more emphasis on cutting back on waste and inefficiency in the public sector. After all, what’s the point of all that negotiating if you are going to waste the 6 billion euros somewhere else? One of the areas the government must look at quickly is revenue collection, firstly because the money needs to be collected but also because this is the only way it can ensure that there is some sense of fairness to what is happening. The same put-upon taxpayers cannot keep paying the price for the country’s failings when businesses and various types professionals get away without contributing their fair share. Whatever the case though, I fear it will take a miracle for Greece to avoid debt restructuring. This doesn’t mean that we should give up and accept it, though. Changes to make the country fairer and more sustainable have to be made.

  2. Yes. Next to cutting back until expenditure matches income, revenue collection is indeed the other priority Greece should act fast. But not doing the latter and not the first. Because that would keep the great injustices that are here today.
    But fraudsters have to be caught, irrespective of political affiliations, pareia, or what ever exception that has been thought of here in Greece.
    To get to that we really need a miracle. Lately I am getting to a point in thinking that the only solution might be to close down completely the Tax-offices, Hospitals and urban planning offices. Make a contingent plan in which these functions would be done for a few months by total outsiders and set up a total new structure for those three sectors that keep on being the most corrupt in the country. New people, totally new rules and structures and if Greece can not get an independent body together to control and correct these bodies then it should ask for outsiders to do it until it can full fill these crucial tasks. I can not see how this could be achieved. But did we ever thought it would be possible that a Greek government would sign up to a deal like the MoU?

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