Monday, July 23, 2012

Greece is back

Wake up call from Germany to anyone who believed that the Spanish bank bailout had created a calm summer for the euro crisis.

Eurozone finance ministers had hardly hung up their phones last Friday, agreeing on the final details of the 100bn euro package for Spanish banks, when it became clear that an old and familiar problem case could require ministers’ full attention earlier than expected. The ECB increased pressure on Greece to comply with the terms of the bailout package by announcing that it would stop accepting Greek bonds as collateral, at least until after a positive verdict from the troika.

Yesterday, news from Germany gave rise to new speculations about a Greek exit. First, the German news magazine “Der Spiegel” reported that the IMF was set to withdraw from the Greek bailout. This does not necessarily mean that the IMF would stop payments but could also mean that the IMF would not contribute to an extension or easing of the current conditions. A bit later, German minister of economic affairs, Philipp Rösler, suggested in a television interview that an exit from the Eurozone could be the best option for Greece. Being more explicit, Rösler clearly said that no money should go to Greece if the Troika concluded that Greek had not fulfilled the bailout conditions.

These new reports and measures come ahead of the next scheduled Troika visit to Athens this week. The Troika will have to prepare another assessment of Greece’s compliance with the bailout conditions so that the next tranche of the loan can be paid out.

Events since Friday have been a clear wake-up call to anyone who thought that the Spanish bank rescue package had bought a calm summer for the euro crisis. Greece is back. In a way, the latest statements and measures reflect a well-known pattern between the Greek government and the other Eurozone countries. It is obvious that lenders are turning up the heat. This does not change the economic analysis of the impact of a possible Greek exit but it shows that patience in at least the biggest Eurozone country is reaching its limits. However, let’s not forget that as long as the ESM is not up and running and the remainders of the EFSF remain the Eurozone’s only anti-contagion tool, a Greek exit looks more like a negotiation strategy than a credible threat.

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