Wednesday, 11 February 2015

Eurogroup meeting 11/2/2015 - What is at stake?

Eurogroup negotiations starting today will have a lasting effect on European politics. Greece's debt is unsustainable (currently at 171% of GDP) and they will enter the discussions seeking a substantial debt reduction, refusing further bailouts from the Troika (EU, ECB, IMF), and requesting an interim (‘bridging’) loan to ensure the country’s short-term financial needs are met until the end of August, giving the new government enough time to form a solid economic plan.

I find it unlikely that a deal will be struck and the consequences could very well be disastrous. First, the majority of European partners find what little they have heard of the Greek economic plan unconvincing. Secondly, responding positively to the Greek requests means that other debt-stricken countries that have also endured austerity will demand a similar deal - basically transferring wealth from a thrifty economically conservative north, to the much less economically active and less transparent south. I cannot see how the German government can sell this to their electorate. Not only are they ideologically opposed to the Greek economic plan, but even assuming they went along with it they would most certainly lose the support of their electorate - it would be political suicide.

Bellicose rhetoric spewing forth from Athens over the last couple of weeks, reopening old wounds that the European project was created to patch in the first place, has marginalised support for the plight of Greece in Germany. Greece is betting that Germany will budge in the end because not doing so would destabilise the entire Eurozone with unpredictable reverberations in the political and economic spheres. What is at stake is European political stability.

What if there is no agreement? With Greece essentially forced to leave the Eurozone, having distanced itself from its erstwhile partners and seeking patronage in the East, the political status quo of the continent changes. Having an isolated and unpredictable Greece in the strategically important south-eastern corner of Europe whose national interests are no longer aligned with those of the rest of Europe is not a sobering thought. It would hardly be surprising to see a rise in military spending everywhere.

Important dates:
Wednesday 11 February
Emergency meeting of eurozone finance ministers, (known as the eurogroup). Greece also loses access to cheapest funding from the European Central Bank.

Thursday 12 February
European leaders meet in Brussels. Alexis Tsipras’s first meeting with all fellow European prime ministers.

Monday 16 February
Deadline to reapply for bailout according to eurogroup head, Jeroen Dijsselbloem.

Wednesday 18 February
European Central Bank governing council meeting to renew emergency funding.

Saturday 28 February
Greece due to receive final €7.2bn instalment from Troika. Without a deal by this date, Greece could lose access to ECB funding.