Europe Stalemate with Greece
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The European Union and Greece are at a stalemate over Greek debt, even as talks continued over the weekend.
An anonymous Greek official said in an email that finance ministers, who were meeting with Greek Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, failed to come to an agreement over Greece’s burgeoning debt load. According to the email, the Greek government is refusing to extend its current debt repayment terms, with Varoufakis saying that Greece was currently facing an “ultimatum” from the EU.
The European Union and Greece are at a stalemate over Greek debt, even as talks continued over the weekend.
An anonymous Greek official said in an email that finance ministers, who were meeting with Greek Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, failed to come to an agreement over Greece’s burgeoning debt load. According to the email, the Greek government is refusing to extend its current debt repayment terms, with Varoufakis saying that Greece was currently facing an “ultimatum” from the EU.
In a statement, Greek officials said, “There can be no agreement today” as a previous deal was “taken off the table” and the EU cannot agree to terms on an emergency loan to help sustain liquidity in the country, who’s public debt load has ballooned to 175% of GDP.
Bailout Terms
Greece has two bailout options, which would provide 240 billion euros of liquidity to help pay creditors, largely French and German banks. While French and German finance ministers are insisting that the bailout is a “technical extension” that is both flexible and “which takes into account the vote of the Greek people,” according to French Finance Minister Michel Spain, the Greeks have categorically refused the terms.
Instead, Greece has repeatedly said that it wants to see a debt restructuring in which its payouts to bondholders tie to GDP growth, with a sliding scale for higher payments with a higher rate of growth.
Currently, Greece spends 2.6% of its GDP on interest, which is significantly lower than Portugal (5%), Italy (4.7%), and Spain (3.3%). Thanks to years of a budget surplus due to drastic spending cuts, Greece has been able to lower the total amount of its budget spent on interest.
However, Finance Minister Varoufakis argues that the debt load remains a hindrance to growth, and that Greece would be able to grow faster, provide a better standard of living, and pay back its creditors faster with renegotiated loan repayments.
Greece’s new Syriza-led government has repeatedly told constituents that the government will stamp out corruption and tax dodging in Greece as a way of raising revenues, while also negotiating a new debt deal that will give the government more money to spend on domestic projects designed to increase growth. Among its plans are a raise to the minimum wage and a food stamps program to help the extreme poor avoid starvation.
The idea has met with a mixed response from the European Central Bank, whose president, Mario Draghi, has publicly expressed sympathy for the Greek program. A more hard line response has come from German Finance Minister Wolfgang Schaeuble, who said the Greeks are refusing to compromise on their position, leading to an impasse.
