by behappyalways » Sat May 27, 2017 7:45 pm
Debt odyssey
Greece meets creditors’ demands but gets no relief
Alexis Tsipras’s government gets caught in a fight between Germany and the IMF
MAKIS, a gym instructor, counted himself lucky three years ago to land a job in the public sector. The 28-year-old works as a groundsman at a sports complex in Glyfada, a seaside suburb of Athens. Hired on a temporary contract, he expected to make a smooth transition to a permanent post in local government. But times are changing.
Greece’s state audit council, which normally rubber-stamps official decisions, unexpectedly ruled this month that municipal employees should be dismissed when their contracts expire.
“That’s it for me, I’ll have to leave and find a job abroad like everyone else,” Makis says, gesturing towards his colleagues: a phalanx of state employees, from rubbish collectors to computer technicians. They are outside Athens’s city hall, protesting against the audit council’s decision.
More upheaval is on the way. On May 18th parliament approved a new package of reforms demanded by the European Union and the IMF, Greece’s bail-out creditors. Sunday shopping will be extended outside tourist areas, despite objections by small retailers claiming they will be driven out of business by large stores that can afford to hire the extra staff required.
“We lobbied the politicians successfully for years to stop this happening, but the game is over,” said Panos, who owns a hardware shop in central Athens.
Passing the measures was supposed to unlock bail-out funds from Greece’s creditors, which the government needs to avoid defaulting on bond payments of around €7bn ($7.9bn) in July. But a long-running squabble between Germany and the IMF has complicated matters.
The fund declined to join Greece’s current bail-out, its third, when it was signed in 2015. Now Wolfgang Schäuble, Germany’s finance minister, says Germany will not agree to disburse any more bail-out money without the IMF’s participation in the programme—which is needed, he thinks, to counter the softies in the European Commission. Mr Schäuble has the backing of some other euro-zone governments.
But the IMF believes that the Europeans’ projections for the Greek economy are too rosy, and that Greece’s debt will be unsustainable unless it gets further deferments on paying it back. Mr Schäuble is wary of granting such debt relief just months before Germany’s election in September.
So despite having met its creditors’ conditions, Greece is stuck in the middle of their row. A meeting in Brussels on May 22nd failed to resolve the dispute. Officials on all sides are confident a deal will be struck in June.
Critics of Alexis Tsipras, Greece’s prime minister and leader of the left-wing Syriza party, say his government has signed up to another five years of austerity without securing the debt relief promised by creditors in return. Worse, he is accused of betraying his own voters.
Whereas last year’s round of tax increases hit the middle class hardest, the new measures will shrink the incomes of poor Greeks. Pensions have been cut a dozen times since 2010; another 18% will be lopped off in 2019.
The tax-free allowance on incomes will be slashed in 2020 to bring Greece in line with its euro-zone partners. (More than half of Greeks pay no income tax at all, compared with 8% for the euro zone as a whole.)
When Syriza swept to power in 2015, Mr Tsipras promised to end austerity and restore social benefits cut by previous governments. Yet his failure to do so has prompted few strikes and street protests, compared with reforms by earlier governments.
One reason is that trade unions, which include many Syriza supporters, have been reluctant to defy their fellow leftists. But after seven years of recession ordinary Greeks seem resigned to getting by on less.
“It’s hard to face the fact that your pension’s getting smaller, but what to do?” shrugs Constantina, a retired teacher.
Syriza officials accept that voters will punish Mr Tsipras at the next election, due in 2019. The conservative New Democracy party, led by Kyriakos Mitsotakis, a staunch reformist, holds a double-digit lead over Syriza in opinion polls.
Some Syriza members have even suggested that the prime minister should call an early election and enjoy a spell in opposition, stirring up trouble for the conservatives while they struggle to implement tough policies already agreed upon with the EU and IMF.
Mr Tsipras’s strategy is not as Machiavellian, say party insiders. With the economy forecast to grow by 1.8% this year and 2.4% in 2018, he is betting that Greece can attract enough investment to make a dent in unemployment, still the highest in the EU at around 23%.
If Syriza can win back enough votes to prevent a conservative landslide at the 2019 election, its 42-year-old leader’s future still looks bright.
Source: The Economist
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