Greece: Still Shying Away from the Hard Decisions

The chances that Greece will present a satisfactory list of reforms by April 20, so that Eurogroup finance ministers could endorse the list at their next meeting April 24, are getting smaller by the day.

Judging by the media reports, part of the problem seems to be that the Greeks actually sitting down with the EU/ECB/IMF representatives have little authority to decide major issues or that various parts of the Greek government contradict each other.

While the inexperience of the new government may partly explain this, it could also point to a further issue: Prime Minister Tsipras still seems to be shying away from the hard decisions.

The Greek government either has to shelve most of its unaffordable election promises and continue roughly with the policies pursued by the Samaras government before. In that scenario, it can then stay in the euro easily and pave the way for a renewed economic upturn.

Otherwise, it will run out of money and will eventually have to print its own new money (Grexit).

Lose/lose for Mr. Tsipras

Whatever Mr. Tsipras ultimately decides, or into whatever corner he gets himself by delaying any hard decision, in the end he will probably get into trouble with part of his own party anyway — either with the pro-euro realists or the anti-euro hardline communists.

Tsipras’s apparent reluctance to take a hard decision, reforms or Grexit, may partly be a negotiating ploy, hoping that Eurozone finance ministers will blink first. But as the Eurozone finance ministers showed on February 20, they are highly unlikely to blink.

In the meantime, the sheer uncertainty about the fate of Greece seems to be pushing the small country into a deeper recession, ultimately weakening its bargaining position. The Grexit risk has certainly not receded over the last three weeks. There is a 30% risk of a catastrophic Grexit instead.

In view of sometimes alarmist news reports about urgent deadlines, it is important to keep one basic fact in mind: As usual in Europe, there is no hard deadline. If no agreement is struck on April 24, Eurogroup finance ministers may still endorse a Greek reform program at an ad hoc gathering shortly thereafter or at their next regular meeting on May 11.

Even if Greece were to start missing some payments in May, as may happen, it might not trigger automatic and immediate withdrawal of ECB support for the banks — provided that, by that time, Greece had finally signaled that it will by and large meet the conditions attached to new support. But it is difficult to see how the current period of limbo could drag on beyond May.

Conclusion

Mr Tsipras will have to bite the bullet of serious reforms within the next four to six weeks if he does not want to go down in history as the prime minister who pushed Greece into a catastrophic exit from Europe.