Some progress was made last Friday in the bargaining game between Greece and the Europartners. The Eurogroup was able to agree with Athens on conducting some pension and tax reforms over and above the current bailout package. The planned austerity measures are intended to guarantee Greece’s ability to sustain debt in the future too. However, the International Monetary Find (IMF) is calling these into question right now. Furthermore, EMU lenders now permit the Greek government to dispose freely of all savings that exceed the budget targets agreed with the creditors. Tsipras‘ government plans, for example, to lower income tax for low-paid workers in such a positive scenario.
With the agreement, the EMU states are sending a signal to Washington that they are easing their strict austerity requirements and allowing scope for growth-enhancing economic policy – one of the IMF’s core demands. In doing so, the EMU states are ultimately trying to charm the IMF in the hope that it will revalue its assessment of Greece’s ability to sustain debt. A compromise is being wrestled in the ongoing impasse between Greece and its creditors, as well as among the creditors themselves, to ensure Washington will participate in the third bailout package and the second credit review can be concluded.
Even if the EMU finance ministers clearly reach out to the IMF, numerous obstacles still have to be removed in the internal creditor dispute to ensure the IMF will participate in the bailout programme. However, time is running out for the second credit review to be concluded: maturing bonds and loan payments of more than EUR 6bn threaten a liquidity squeeze in July at the latest. If further bailout loans are not disbursed, Greece could once again find itself in severe financial difficulties in the summer at the latest. However, given that the negotiating partners are clearly willing to compromise, there are no signs of an escalation of the conflict as in summer 2015.
Aside from the latest progress, the dispute between Athens and its creditors about the disbursement of further financial aid is likely to continue in the coming weeks. The Greek government’s reluctance to implement reform is likely to delay the conclusion of the second credit review. It is very doubtful whether the bargaining game will be resolved before the next Eurogroup meeting at the end of May. Past experience shows that the tug-of-war concerning the Greek affair is not over yet. Nevertheless, the German government too is probably keen to get the issue out of the way just before the crucial stage of the election campaign.