U S Chamber of Commerce : The Greek Crisis – It’s Back!

Like a gripping television drama, the actors are preparing for the next installment of the Greek debt crisis as the audience waits anxiously for plotlines to unfold.

Recall in the most recent episode run August of last year the Greek government presided over an economy years in recession, a financial system hemorrhaging cash resulting in draconian capital controls, a monetary system still coupled to the euro, and a nation denied access to private capital markets as its debt levels soared unsustainably.

In August, the Greek government was locked in negotiations with the Troika comprised of the International Monetary Fund (IMF), the European Union, and the European Central bank. The Greek people had recently elected a new government vowing to oppose further Troika demands for better fiscal and economic behavior. Then, as the high-stakes negotiations nearly broke down, reality and rationality finally descended. The result was another desperately needed bailout infusion of 13 billion euros, with another 10 billion to be made available largely to recapitalize the Greek banking system. Immediate crisis averted.

In November, the IMF released an updated assessment of the Greek government's performance under the August agreement. Approvingly, it found the Greeks had carried out a great many of the required reforms, including such nitty-gritty intrusions as Action 18, 'Issue a Ministerial Decision for determination of notaries' fees.' Truth.

The most notable exception to the Greek's many accomplishments included required and sweeping pension reforms. And there's the rub.

To review, Greece has the highest pension spending as a share of GDP in the eurozone at 16.2 percent. Italy is next closest at 15.7 percent. Germany, Greece's de facto financier and reluctant benefactor, runs in the middle of the pack at 10 percent of GDP. The Greek government insists it will not cut Greece's main or supplementary pensions. It has also suggested the IMF butt out of the negotiations going forward, which would seem quite impossible as the negotiations surround compliance to the August agreement to which the IMF was a principal.

While many of the Troika's demanded reforms were laudable, either toward improving economic performance or fiscal governance, cumulatively they were unlikely to resuscitate the Greek economy noticeably. No nation ever rose or fell on the basis of notary fees. Yet, without rapid economic recovery, Greece's efforts against the cycle of bailout and financial crisis recall Sisyphus and the mountain.

And so, negotiations have resumed between the Troika and the Greek government as to what constitutes adequate reforms allowing Greece access to another sub-tranche of the August 2015 bailout provision. Alexis Tsipras, Greece's prime minister, has declared his nation will not give in to 'unreasonable' demands for pension and other reforms needed to bring the government's primary surplus to 3.5 percent of GDP by 2018. It's hard to argue with opposing anything 'unreasonable.'

Yet faced with a multiplicity of their own problems economic and social, Greece's benefactors are in no mood for any Greek 'backtracking,' in the words of Bank of Greece's Yannis Stournaras. The only way this turns out well is for both sides to avoid another high-stakes, very public, and highly acrimonious contest of wills, instead coming to terms quickly on what both sides understand must be done. With everything else going on in the world, this is one crisis redux we could do without.