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.