Failure to clinch Eurogroup deal narrows options for Tsipras

In the aftermath of Greece’s failure to seal a deal at last Monday’s Eurogroup, the government find itself now with its back against a wall, as the road map outlining the way out of the crisis it had so painstakingly cultivated in recent months, was tossed out.

Moreover, the coalition’s hopes for a “comprehensive deal,” including debt relief measures, to balance out the political cost of legislating a highly unpopular batch of fresh austerity measures last month have also been dashed.

The best it can look forward to now, according to government aides, is that Finance Minister Euclid Tsakalotos is presented at the next Eurogroup on June 15 with a proposal similar to the one he rejected on Monday.

However, it is highly unlikely this would pave the way for Greece’s inclusion in the European Central Bank’s quantitative easing program (QE) – a much-touted component of the leftist-led administration’s strategy to put the country on the road to recovery and allow it to borrow from international markets. At worst, the government will only receive formal recognition that the second review of Greece’s third bailout has been concluded, so that it can receive rescue funds to pay off debt maturing in July.

In this scenario, the other important decisions such as debt relief would be put off until after the German elections in September – which is what German Finance Minister Wolfgang Schaeuble has wanted all along.

In both outcomes, Prime Minister Alexis Tsipras is faced with a colossal political problem.

If, on the one hand, a deal is reached, Greece will be required to achieve large primary surpluses for many years to come. And this will be hard, if not impossible, to defend to Parliament and public opinion.

If, on the other, Greece only receives a bailout tranche to cover its bond expenses for July then the government will be forced to explain to a wary and disillusioned electorate why it pushed through pension cuts and tax hikes without having secured something in return.

In either case, Tsipras has already come under intense criticism from within party ranks and the opposition, as he is accused of over-investing in the bid for Greece’s inclusion in QE and some form of debt relief arrangement, at the expense of a timely the conclusion of the second review.

The repercussions of this unfavorable turn of events not only slowed the economy down in early 2017 but further undermined the confidence of international markets, trapping Tsipras between a rock and a hard place.