Tuesday, 3 February 2015

Can Syriza build a debt forgiveness alliance?

The Syriza-led Greek government has launched into action, sending ministers across Europe to drum up support for a debt forgiveness conference and to sound out their negotiating partners. This week Tsipras will travel to Brussels and Paris. His finance minister, Varoufakis has already hit London and Paris – getting support from his French opposite number that France will help Greece settle with its creditors, but his British counterpart used the opportunity to warn about the uncertainties Greece was plunging the Eurozone into (which may have something to do with the upcoming UK election in May). With Merkel and various other European figures signalling that there will be no further debt relief for Greece, what are Syriza’s chances in building a coalition?

Europe comes first”, Varoufakis says, but there may be some reticence in even the crisis-hit countries to do a deal. The governing parties in Dublin and Madrid are keen to not be seen as another Greece (in fact “we’re not Greece” is a constant refrain during the worst parts of the crisis), and are worried about giving political comfort to Sinn Féin or Podemos by letting what they see a brinkmanship politics succeed – or appear to succeed. Debt reduction could be a benefit, however. Ireland is looking for a retroactive direct bank recapitalisation, for instance. Since Ireland’s bailout was essentially spent on the banks (which in turn could use it to pay off their France and German banking creditors), this would shift the debt burden off the public purse.

The Irish approach has the advantage of being rooted in an earlier promise (although in 2012 it was also promised that further debt restructuring for Greece would be looked at), and isn’t as blatant as debt forgiveness. It fits more neatly into the banking union narrative, and the narrative that Ireland’s crisis was different.

France and Italy are more promising allies as they look to Greece as a catalyst to change the EU’s austerity course. Greece is crying out for debt relief – years of austerity have increased the debt burden to 175% GDP and shrunk the economy by 25%. To continue placing such burdens on a society is politically poisonous and counter-productive even for those who back reforms. The road to debt relief might be rockier than it first appears even in the other crisis countries, but debt and austerity will have to be revisited if Greece and the Eurozone are to grow again.

No comments:

Post a Comment