Tsipras’s last friend in Europe

30 Jun 2015 | Author: | No comments yet »

Europe shrugs its shoulders.

The Socialist French president, who has taken a lower profile to German Chancellor Angela Merkel through weeks of anguished talks about Greece, sprang into action on Monday to preach the word of hope, arguing there was still time to strike a deal to keep Greece in the eurozone. “France remains open, is always open for dialogue [with Greece] to restart today or tomorrow,” Hollande told journalists in Paris after an emergency cabinet meeting. Reactions to Greece’s pending referendum over its euro membership ranged from dismay to calm Monday, as EU officials implored Greeks to reaffirm their commitment to Europe and national leaders led by Angela Merkel cautioned against trying to influence the outcome.WASHINGTON — President Obama and his European counterparts are urging Greece to resume negotiations over its debt crisis amid fears that the nation’s financial crisis will damage economies worldwide.After continuous financial instability and cutbacks since 2008, it is easy to see how heaping additional debt and further austerity on to Greece was unpalatable. Finance Minister Michel Sapin went even further, suggesting that France still had a role to play as mediator between an ostracized Greek government and the rest of the eurozone.

The weekend announcement of the July 5 vote caused Greece’s long-running aid talks to collapse, casting doubt on the country’s membership in the euro. Photo: Mint It has been easy to ignore the doings in Greece for the past few years, with the perpetual series of summits in Brussels that never seem to resolve anything. During a Monday phone call, Obama and French President Francois Hollande, “agreed to combine their efforts to favor a return to talks, allowing a swift resolution of the crisis and insuring Greece’s financial stability,” said a statement from the French president’s office. Yet the question remained as to why France, which has advocated a role as a discreet conduit between Athens, Berlin and Brussels, chose to take a strong public stand so late in the game — and whether the expressions of solidarity with Greece were sincere.

From that point of view one could easily have sympathy with the view taken by the Greek prime minister Alexis Tsipras who castigated the conditions the EU and IMF sought to impose in return for extending the bailout. Critics pointed out that when it comes to the Greek debt crisis, Hollande is wary of criticism from left-wing rebels who accuse him of letting Germany run the talks, unchallenged.

European stock indexes posted steep declines and the bonds of Italy, Spain and Portugal took a hit, but the reaction was far from the calamity some feared. One of those lenders, the European Central Bank, has capped its emergency support for Greece’s banks, prompting the Greek government to put limits in cash withdrawals and transfers. Hollande and Sapin’s statements — which were echoed by similarly upbeat statements from EU Economic and Financial Affairs Commissioner Pierre Moscovici — came just a week after a group of left-wing and Green deputies criticized the French government’s handling of the Greek crisis in an open letter published in Libération. Mr Tsipras gave the euro zone leaders two unexpected pieces of news when he announced he would hold a referendum on the extension to the bailout and that he would advocate for a No vote. Arguing that France’s role was to be “alongside the Greek people,” the letter signed by some 60 politicians urged Hollande to “take an initiative that can unblock negotiations between the Eurogroup and the Greek authorities.” Hollande, who is trying to rally his left-wing base two years ahead of a presidential election, took heed.

The muted reaction is unwelcome news to Greece’s leftist leaders, who have tried to use the specter of financial market chaos to their advantage in negotiations. Days after the letter was published, he invited a delegation of deputies to the Elysée Palace to explain exactly what he had been doing on Greece. “It’s always the same issue with Hollande: He is neither totally in favor of the German stance, nor totally against it — he’s somewhere in the middle,” said Guillaume Balas, a socialist member of European Parliament who signed the letter but did not go to the Elysée. Greek leaders think the offer on the table from European governments and the International Monetary Fund is lousy, requiring still more pension cuts and tax increases in a depressed economy, and intend to throw to voters the question of whether to accept it. Experience elsewhere shows that these restrictions can be difficult to unwind once introduced – Iceland is now only beginning to lift capital controls which were implemented in 2008.

Whatever the exact phrasing of the question (and assuming the referendum goes forward as planned), it really boils down to this simple choice: A “Yes” vote means that Greece will continue the grinding era of austerity that has caused so much pain to its citizens over the past five years, in exchange for keeping the euro currency and the monetary stability it provides. A “No” vote almost certainly means that the country will walk away from the euro and create its own currency (which will surely devalue sharply), bringing financial chaos in the near term but creating the possibility of a rebound in the medium term as Greece becomes more competitive with its devalued currency. All of these conditions will have enormously damaging consequences for the Greek economy – investment and consumer spending will be immediately affected. Juncker made a dramatic appeal to Greeks to support Europe’s reform blueprint for their country, accusing the leftist government in Athens of lying to the public about the proposals and of protecting special interests.

Either we are all winners or we are all losers.” On Greek television, Tsipras continued his criticism of his nation’s creditors. “We urge them not to kill democracy in its birthplace and to be realistic,” Tsipras said. “Each time we tried to compromise they went even further.” Juncker’s decision to go on the offensive suggests he sees no hope of resolving the crisis with the Tsipras government. Capital controls that limit people’s ability to withdraw and move money out of the country are, it is safe to say, not a sign of a healthy currency union. It would be hard to call the dollar the national currency of the US if laws prevented me from taking Maryland dollars and depositing them in a Virginia bank. In contrast to Merkel, who appeared sanguine about Greece’s future in Europe, Juncker insisted that everything must be undertaken to keep the country in. European leaders in Brussels and Frankfurt, Germany and Berlin may not be being fair, or democratic, and there’s a good case that the economic policy they are advancing is not very sound.

Their contrasting styles reflect their divergent political priorities, with Merkel stressing Germany’s national interests and Juncker European solidarity. As if to underline the difference, Merkel, at one point in her short press conference, reassured Germans that a Greek default wouldn’t scupper the government’s plans to balance the budget in the coming years. Switching between French, English and German, Juncker spoke for about 45 minutes against a backdrop of European Union and Greek flags in the Commission’s drab press center. It’s fine to play the blame game over how public debt got out of control in the country, but by the time 2010 came around what was done was done, and the human consequences of austerity have been grave. Juncker accused Tsipras of withholding key information about the creditor proposals and implied that the Greek leadership was protecting ship-owners and other special interests by resisting pressure to raise their taxes.

Expect the ECB and European institutions to deploy enormous financial firepower to prevent a Greek exit from spilling over to Portugal and Italy and Spain.

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