Put three people in a room who can’t get on with each other. Condemn them to stay there for all eternity while they torture each other. Sit and watch as the gruesome story plays out. And what do you have?
One answer is the 1944 existentialist play by Jean-Paul Sartre, Huis Clos. Another is the story of the neverending Greek debt crisis in which the three main characters are Alexis Tsipras, Wolfgang Schäuble and Christine Lagarde.
The plot is as follows. Greece has been through a terrible slump. Its economy has shrunk by more than a quarter, equivalent to the Great Depression in the US. Its financial position has become so parlous and its credit-rating so poor that it needs financial help to get by. It is currently on its third bailout.
Up until now the money has been provided by Europe and the International Monetary Fund and it has come with strings attached. The money for Athens is disbursed in tranches and can be stopped if Greece fails to go ahead with promised reforms. Athens is balking at inflicting further pain on its population, which has led to the threat that no more assistance will be forthcoming. To complicate matters, the Europeans and the IMF have fallen out.
Put simply, the Greeks say the conditions on them are too severe. They want debt relief but are resisting demands at pension reform and for “hire and fire” labour market reform.
The IMF agrees that Greece’s debt burden is far too high and the stipulation that the country should run an underlying budget surplus of 3.5% a year is unrealistic. The Fund is warning that the debt could become “highly explosive” and will not financially back the latest rescue attempt without meaningful debt relief. But it is also insisting that Greece sticks to a reform programme that the Fund believes will improve growth prospects.
Europe, for its part, is less hardline when it comes to Greece’s reform programme and would be inclined to ignore any backsliding. But it thinks Greece should stick to its budget plan and is resistant to the idea of deeper debt relief.
These are seemingly irreconcilable positions but unless they are reconciled Greece faces another period of turmoil. Politics is part of the problem.
Tsipras plays one of the three lead parts in the play. Elected as a leftwing firebrand two years ago, Tsipras has had a rapid fall from grace. He caved in when pressure was put on him by the Europeans in the summer of 2015 and having run for office on an anti-austerity programme eventually agreed to even more draconian bailout terms than the previous centrist governments. For an increasing number of Greeks, Tsipras is no longer an iconoclast; he is just another man in a suit.
With public support waning, Tsipras is once again hanging tough. He aroused the ire of the Europeans by giving a Christmas bonus to pensioners and free school meals to poverty-stricken families. Europe responded by suspending the limited debt relief it has previously granted. Tsipras says Greece has already done enough and will suffer no more.
Europe is played by Schäuble, the German finance minister. He too is facing political pressures. The German public thinks enough aid has already been given to Greece, a country it considers is not doing enough to help itself. Opposition to further debt relief is strong and a general election is looming.
The third cast member is Lagarde, a former French finance minister and now managing director of the IMF. Under its own rules, the IMF is forbidden from putting money into a bailout if it thinks debt is unsustainable. There have been reports coming out of Washington that the Fund believes Greece’s debt will rise to 275% of national income by 2060, which would undoubtedly put it into the “unsustainable” category.
The latest act in this play takes place in Washington this week when the IMF’s governing executive board discusses Greece. One factor complicating the issue is that time is running out to get matters sorted before the first in a series of European elections kicks off in in the Netherlands in March.
A second is that the drama has a new character in the form of Donald Trump. There is little evidence that the US president gives a fig about whether Greece gets debt relief but he may have more than a walk-on role because the US is the biggest shareholder at the Fund and has the power to veto any decision it doesn’t like.
Trump has expressed strong – and not exactly positive – views about the European Union in general and Germany in particular. Causing consternation in Brussels, the new American president has said the EU has become a vehicle for German interests. His trade adviser Peter Navarro has accused Germany of being a currency manipulator, using a ”grossly undervalued” euro to run up a massive current account surplus.
Navarro’s specific criticism about currency manipulation is wide of the mark. Germany is part of the eurozone and doesn’t always agree with the monetary policy decisions taken by the European Central Bank. The euro’s recent weakness has nothing to do with a deliberate attempt by the Germans to reduce its value and everything to do with the fact that Europe has been loosening monetary policy at a time when the US has started to raise interest rates.
But Navarro is right about Germany’s current account surplus, which is running at almost 9% of GDP. This is not simply excessive but also in flagrant breach of EU rules. Berlin has refused entreaties from the IMF, the European commission and the G20 group of developed and developing nations to run down its surplus by importing more. That would benefit both powerful countries such as the US and the weaker bits of the eurozone such as Greece, but Germany has steadfastly refused to change its approach.
The Europeans have said they would like Greece to be sorted at the meeting of finance ministers planned for 20 February. This could still happen if Tsipras decides that the only alternative to liberalising redundancy rules and pension reform would be to hold a “who runs Greece?” election that he would almost certainly lose.
The situation could also be resolved if Germany decided to support the IMF’s call for much more generous debt relief for Greece, or if Berlin bowed to pressure from Trump and boosted domestic spending.
But the ingredients are there for the neverending crisis to rumble on into the summer, when Greece will eventually run out of money and will not be able to pay its creditors. If there is no swift resolution, bond yields will rise and talk of Grexit will resurface.
Huis Clos is known in English as No Exit. For Greece, if life becomes even more intolerable, there is one way out.
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