Another missed Greek opportunity?

May 11, 2015

Greek Finance Minister Varoufakis leaves the European Commission headquarters in Brussels

What had been billed as another defining moment in the Greek saga now looks like it will be another missed opportunity.

Euro zone finance ministers meet in Brussels today with no one very confident that a cash-for-reforms deal will be struck with the Greek government even though it must pay the International Monetary Fund 750 million euros tomorrow, a bill it is not certain it can meet.

As things stand, Athens is refusing to cut pensions or make hiring and firing easier to meet their creditors’ demands, dimming prospects of progress towards securing desperately needed financial aid.

German Finance Minister Wolfgang Schaeuble said he did not expect a final agreement today and did not know if the Greek government had an exact overview of how parlous its finances are.

An updated reform plan released by the Greek finance ministry on Saturday put economic growth at little more than a third of the pace it originally targeted in its 2015 budget.

Athens wants the Eurogroup ministers to recognise progress towards an agreement in order to give the European Central Bank leeway to let it sell more short-term debt to Greek banks to stay afloat in the short-term.

But the ECB is unlikely to make such a move unless the euro zone ministers set out a strong prospect of releasing frozen bailout funds.

A surprisingly decisive election win for Britain’s Conservative party will allow Prime Minister David Cameron to govern unencumbered by coalition partners. Three other party leaders have fallen on their swords leaving him and the Scottish Nationalists triumphant.

This week, it’s back to business and the realization that despite his stunning win, he now has a parliamentary majority of 12, rather than the 70-plus that governing with the Liberal Democrats afforded him.

Keeping Scotland in the UK and Britain in Europe will be no mean achievement, particularly since many in his party are opposed to the latter.

Cameron has cards to play. By exceeding expectations he can expect party discipline for a while and he now has a lot of patronage. There are something like 120 ministerial posts to hand out so there is plenty of scope to buy off some of the awkward squad.

But so fervent is euroscepticism in his ranks that when it comes to his promised in-out referendum in 2017 unity may well evaporate. Cameron is still presiding over a coalition and this one might be considerably more fractious.

The prime minister will meet a committee of his backbench lawmakers today to discuss his European strategy and will continue appointing ministers.

Cameron’s Conservative predecessor as premier, John Major, who had a similarly slim majority in the 1990s, can testify to the fact that the anti-EU faction in their party will never go quietly.

Cameron also needs to find a negotiator who understands the EU, something the Conservatives have shown little sign of over the past five years. Britain’s European partners are willing to help, up to a point, and it’s hard to see Cameron not campaigning to stay in, not least because “Brexit” could well lead to “Scoxit” since Scots are far more pro-European than their English cousins.

But the insistence on the need for EU treaty change has virtually no chance of coming to pass in the next two years – the rest of the bloc is focused on Greece now, Spanish, Portuguese and Polish elections are due later in the year and French and German elections in 2017 mean there will be no appetite for it in Paris and Berlin.

Some in the EU are already saying Britain should speed up the referendum and hold it next year. That would make treaty change impossible. The Sunday Times reported Cameron would make finance minister George Osborne his lead negotiator on Europe and speed up his push to win concessions from the bloc.

On freeing up business to do what it does best, boosting global trade, curbing the EU’s ability to legislate in every corner of life and cutting welfare payments for immigrants, Cameron will find considerable support.

But he has already had to ditch plans to restrict free movement of labour and a meaningful repatriation of powers of the magnitude many of his followers want looks extremely difficult to achieve, even if his government gets better at winning allies within the bloc than it has been.

The Scots voted against independence in a referendum only last year but must surely expect a repeat in the next few years now the SNP can argue that their country has again been saddled with unpopular Conservative rule by English voters.

The economics of independence may be dubious but momentum like this is hard to stop. Both Cameron and Osborne said they would look to reunite the country as a matter of urgency.

That is also fraught with difficulty. Giving Scotland sweeping fiscal powers while continuing to underwrite it, and at the same time promising another five years of austerity for the rest of the country holds obvious perils.

The Bank of England delayed its latest policy decision to today to avoid the political fray. It will leave interest rates at 0.5 percent, where they have been for six years.
All else being equal, interest rates could head higher marginally more slowly under a Conservative government, which is pledging to cut the budget deficit more rapidly than Labour would have. The Bank is unlikely to be drawn into that debate.

Polish President Bronislaw Komorowski came in a surprise second behind his conservative opponent in the first round of a presidential election on Sunday and must now face him in a run-off. That sends an alarming message for Komorowski’s allies in the Polish government who hope to win a record third term in office in a parliamentary election later this year.

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