|Two key players in the Greek debt saga, Dijsselbloem and Lagarde.|
The article begins as follows:
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.
And the article ends this way:
|Another key player, Schaeuble.|
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.
If you want to read the recent view of the IMF on the Greek debt crisis, you will find interesting information in this IMF Press Briefing of February 9, 2017: Transcript IMF Press Briefing.