Taking out the Troika

The vilified Troika – the group consisting of the Commission, ECB and IMF that oversees the implementation of the bailout programmes – should be replaced, Juncker said in his election mission statement. The full quote was (PDF, page 8):

“In the future, we should be able to replace the ‘troika’ with a more democratically legitimate and more accountable structure, based around European institutions with enhanced parliamentary control both at European and at national level.”

The revival of this statement probably points to how Juncker feels the Greek negotiations should go. Debt forgiveness is too controversial and divisive (and Greece appears to be less fixed on it now), but a change in debt terms and a replacement of the Troika system would be a big win for Syriza that might be sellable to the rest of the Eurozone. Merkel has poured cold water on the idea of replacing the Troika, and Spain has also reiterated that solutions are in the gift of the Eurozone states acting together, not the EU institutions. Still, it could be an element to Eurozone negotiations if they successfully manage to attain a Europe-wide, as well as Greek, focus.

So what would replacing the Troika mean?

Replacing the Troika raises a lot of questions. First, the IMF is part of the Troika – if it’s replaced by the EU institutions in some form, then what happens to IMF support (and Member State contributions to it)? Would it be replaced by a Eurozone Monetary Fund which would in turn be part of the IMF system?

A bigger question is what greater democratic accountability would look like. Simply replacing the Troika with, say, a joint European Parliament and national parliament committee to review implementation or to hold the relevant EU official/commissioner to account would be problematic. If the budget and debt rules are already set and the allowances for public investment already built in, then what is it that MEPs and MPs would bring to the process? Decisions about implementation should remain with the national parliament, which would leave the EP little to do if the overall direction is already part of the rules.

Such democratic scrutiny would be helpful, however. By analysing the situation and flagging issues, it would make the process more responsive to the country’s needs. The European Parliament, which has voted through funds for crisis-hit countries for specific purposes, could better target such money as a result. But the money that the EU provides directly would be small. There would still be a sense of bilaterial contracts between creditor and debtor states and the sensitivity over implementing rules, loaning money and negotiations would remain. In this sense the German position – that the Troika is an instrument to help the Eurogroup assess programmes and decide how to proceed – has a point.

And this leaves out the power and influence of the ECB, which it gains from being the only European actor with the financial firepower and authority to act decisively – and ask for its conditions to be observed.

Replacing the Troika is not just about getting rid of some hate figures; it goes to the heart of how the Eurozone is run, including the unanswered question of fiscal union.

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.