General Economy As Greek GDP Figures Released

What happens if a bailout country finally decides to just say No?

It is a question that some officials with the so-called “troika” of international lenders have started asking themselves about Greece. The Greek coalition government, following more than a year in office marked by increasing obstinacy towards reform demands, insists repeatedly that it will not countenance any more austerity measures.

In many ways, Greece has lost its ability to shock. Nearly all its debt is held by its official rescuers – European governments, eurozone institutions and the International Monetary Fund – meaning the broader financial market pays it little attention.

And stand-offs between Athens and bailout monitors have become so commonplace that they have stopped registering on most official radars, even in places like Brussels and Berlin, where policy makers are most attuned to vagaries in Greek performance.

But if the barely concealed exasperation among senior negotiators in recent days is any indication, the current round of talks, which have dragged on for two months, appear to be a change in kind, not just of degree.

On its surface, the dispute focuses on a familiar theme. A fiscal gap of about €1.5bn has opened up in the Greek government’s 2014 budget that must be closed before the next aid payment is made. The conflict-ridden privatisation programme needs to be overhauled. Structural reforms, such as lifting a moratorium on mortgage foreclosures, must be agreed to.

But for those who have been working on the Greek programme for years, something more fundamental appears to be changing. Athens, never an enthusiastic reformer, has even fewer reasons to co-operate.

“Clearly what’s happened is the political casualties are becoming very evident,” said one senior troika negotiator. “There’s just this groundswell of opposition.”

To be sure, much of this is the “reform fatigue” that has plagued Greece and other bailout countries almost as soon as their rescues were put in place. But the calculus in Athens has begun to shift in ways that some fear has weakened the incentives for a deal.

The most obvious consideration for the Greek government is political. Although it survived yet another confidence vote this month, its parliamentary majority keeps shrinking, now down to just four votes in a 300-seat parliament.

And unlike Portugal, which has also seen a governing coalition recently survive a near-death experience, the opposition in Greece is not a mainstream party that has previously backed the bailout. The far-left Syriza has browbeat leftist politicians of all stripes – including supporters of Pasok, the traditional centre-left party and member of the government coalition – to turn against the programme.

Syriza consistently polls as the largest party in Greece, while Pasok is in its death throes, regularly behind even the neo-Nazi Golden Dawn party. Any collapse of the coalition government could well spell the end of the bailout programme as we have come to know it.

But there is also a bigger but less noticed change in Greece’s circumstances. The government is taking in more money than it spends, not counting interest payments on its national debt. This “primary budget surplus” means every extra tax dollar squeezed out of Greek voters goes to pay creditors.

Although troika officials disagree over whether this is behind the newfound inflexibility, historically governments receiving international assistance become far less co-operative once they can fully pay for their own daily activities. Indeed, if Athens had its own central bank to shore up its financial sector, there would be few incentives to keep paying off the EU and IMF at all.

The incentives have changed for the eurozone too. Many believe the eurozone’s backstops and firewalls will prevent a Greek crisis from infecting the rest of the single currency. The next big Greek debt payment due in May is to the European Central Bank. Until then, there are very few reasons to release any aid to Athens.

There are some within the troika and in national finance ministries who always thought a Greek exit from the eurozone was inevitable. Unless Athens and its official creditors find more reasons for compromise, their worst fears may become reality.

Get alerts on Greece debt crisis when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article