Mon, Feb 06, 2017 - Page 7 News List

Grexit? Greece threatens break with EU following debt crisis

The country faces a critical few weeks as it struggles to meet bailout conditions amid rising pressures in Germany and the US

By Helena Smith  /  The Guardian, ATHENS

Illustration: Yusha

In the week of Groundhog Day, it seemed entirely appropriate: Greek farmers, many on tractors, have once again been blockading roads and border posts amid mounting signs that the country long at the epicenter of Europe’s debt woes is — once again — teetering toward crisis.

Protesting farmers have been a regular feature of the social unrest that has sporadically gripped Greece. It is now more than seven years since the Greek financial crisis erupted and the debt drama has often had a deja vu quality about it.

Eclipsed last year by the UK’s vote to exit the EU, and US President Donald Trump’s equally unlikely electoral victory, audience interest in the nation’s epic struggle to keep bankruptcy at bay has inevitably waned.

Yet out of the spotlight, away from the headlines, a perfect storm is brewing.

Bailout negotiations between Athens and its creditors have stalled. The possibility of Grexit, or euro exit, has re-emerged and bond yields have spiked. The yield on two-year Greek government bonds has soared from 6 percent to 10 percent in less than two weeks as spooked investors have dumped their holdings, and the shrill rhetoric last seen at the height of the crisis in 2015 has returned.

Analysts sensing dangerous deadlock are sounding the alarm — an alarm that the embattled Greek Prime Minister Alexis Tsipras was expected to raise in talks with German Chancellor Angela Merkel and other European leaders in Malta on Friday.

“I am very worried we are heading toward a rupture with the EU,” prominent political commentator Pantelis Kapsis said. “There are lots of signs that at the back of their minds people in Syriza [the ruling leftist party] are entertaining various ideas of going it alone. What is sure is that we are entering a very difficult period which quite possibly could lead us to a point of no return.”

Once again, time is of the essence. Shored up by a third EU-led bailout, Athens was told this week that further rescue funds would not be forthcoming until it concluded a compliance review of terms attached to the 86 billion euros (US$92.8 billion) aid package.

In July, Greece faces debt repayments of 10.5 billion euros — once again raising the specter of default because the country just does not have the money.

The impasse has turned into a standoff as creditors demand additional austerity once the current bailout expires.

Without further reduction of pensions — already cut 12 times since the crisis began — and the tax-free threshold of personal incomes, the IMF argues the debt-stricken country will never be able to achieve its agreed fiscal goal of a primary surplus of 3.5 percent of GDP from 2018.

In a fiery parliamentary debate late Wednesday, Tsipras dug in, insisting his two-party coalition — in power with a wafer-thin majority of two — would not cave in to demands that his government has repeatedly called absurd.

“The IMF’s demands go beyond any democratic and constitutional logic and value,” he said.

Exiled from international capital markets, completion of the review is essential to Greece being included in the European Central Bank’s bond-buying program on March 9, key to the country regaining market access.

If the deadline is missed, few believe Athens will be able to keep itself afloat without a fourth bailout once the latest loans end.

In a Europe preoccupied with other matters — and in fear of an anti-establishment ascendant far right — the prospect of that happening is slim.

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