Even if the ECB gets its way, its task will only get harder
It’s hardly surprising that when it comes to scary piles of debt, EU bureaucrats are no more willing to confront the horrible truth than ordinary consumers. The truth is that Greece faces a funding shortfall of €60-80bn next year, a year in which it was meant to be ready to go back to markets for cash.
But even at the time, economists saw the rescue as a lavish way of kicking the debt can down the road. Greece’s debt is still forecast to reach 160 per cent of GDP before coming down, even if it does somehow meet its deficit target of 7.6 per cent this year (having missed last year’s 8.6 per cent target by 0.9 per cent).
The latest mooted deal – a boost to the first bailout in return for more promises that Athens won’t be able to keep – is another attempt to move the can down the road, but it could prove to be more of a futile tap than a kick.
So what is the alternative? The EU appears to be creeping back from even tentative moves to “reprofile”, “reschedule” or “softly” restructure Greece’s debt. Instead, it will hand out the cash to stop Athens going bankrupt in July, and then worry about what to do in August.
If the EU goes down this route, it will show that it is the ECB, and not the diplomats, that is calling the shots. Two board members of the Bank have stepped up recently to squash attempts at an early restructuring: first Juergen Stark warned that it would be “worse than Lehman” and then Christian Noyer opined that it would be a “horror story”.
So what can Greece and the EU do about this mountain of debt? It’s easy to agree that the state needs a radical overhaul, not least so that it is capable of collecting its own taxes and selling off at least €50bn of assets.
The ECB is betting that it will be easier to force through this reform while Athens is living hand-to-mouth on EU cash than it will be after Greece has been allowed to renege on its debt obligations.
But ultimately, the Bank is trying to push together two repelling poles of a magnet: Greeks, who don’t want another bailout tied to spending cuts – and Germans, who don’t want to pay for it.