No breakthrough imminent in talks between Greece, lenders

Despite efforts by Prime Minister Alexis Tsipras to secure Berlin’s political backing for a speedy conclusion of Greece’s bailout review, it appears that a breakthrough is still far away, with European officials saying it might not come until March or April.

Even if Tsipras gets creditors’ approval for his unilateral decision to offer a Christmas bonus to thousands of Greek pensioners and extend a value-added tax discount for Aegean islands, the basic problem is an ongoing dispute between Greece and its creditors over the extent of austerity that is required and, more specifically, a difference of opinion between the EU and the IMF.

European officials told Kathimerini that Tsipras’s pension and VAT announcements caught them off guard. Greek authorities had indicated in September that they would like to use the cash generated by a primary budget surplus to help Greeks hit hardest by the crisis but there had been no subsequent discussion, the officials said. “We don’t understand whether that move was part of a strategy of blackmail, exerting further pressure in a bid to push away the IMF, or if there was some other goal,” one European official told Kathimerini.

Another official said he understood the political advantage for Tsipras of such a move which, however, “put in doubt the commitments of the Greek government” and gave credence to those who claim that Athens will return to the financial mismanagement that got the country into trouble in the first place.

In a carefully-worded report, Greece’s creditors avoided taking a clear stand on whether Tsipras’s announcements violated the terms of the country’s bailout, thus shifting the onus to EU member states, which are to decide this week whether to suspend the implementation of short-term debt relief measures for Greece, as the European Stability Mechanism proposed last week. However, even if Athens gets the green light for debt relief, concluding the bailout review is still the key problem.

The spat between the EU and the IMF over the need for debt relief and the level of a budget surplus Athens must attain in the coming years remains a key issue as neither side appears willing to compromise. The IMF has still not determined whether it will join the third bailout, citing unclear commitments on debt relief and its insistence on additional measures if the EU persists with higher budget surplus targets. For Germany, having the IMF on board is paramount. In Berlin’s eyes, the Fund not joining points to a fourth bailout for Greece, which German authorities cannot bring to the Bundestag in an election year.

According to sources, German Chancellor Angela Merkel told Tsipras last week that the Fund should maintain an “active role” in the Greek program.

In any case, January is sure to be a critical month for Tsipras and his government. The best-case scenario foresees a compromise between the EU and the IMF that will allow Tsipras to complete the bailout review without committing to additional austerity.

There is a possibility, however, that Tsipras might want to ratchet up the clash with the IMF and Berlin and call early elections. His dismissal of the IMF last week as “anti-democratic” in its demands of Greece could provide the reasoning for a decision to resort to snap polls.