Greece’s new government received welcome support from US President Barack Obama on Sunday for its efforts to loosen austerity programmes amid tough rhetoric from its European creditors.
The leftist government of Prime Minister Alexis Tsipras is in a race against time to secure greater leeway from its European partners as it seeks to deliver on a campaign pledge to reverse the belt-tightening measures stifling Greece's economy.
Its European charm offensive got a much-needed boost from across the Atlantic on Sunday as the White House warned that imposing tough austerity programmes on Greece could backfire on its creditors. When asked about the situation in Greece, Obama said the crisis-hit country would not deliver an economic recovery unless the government is allowed to pursue growth through fiscal stimulus.
"You cannot keep on squeezing countries that are in the midst of depression," the US president told CNN. "At some point, there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits."
Obama said the Greek economy was in "dire need" of reform but warned that drastic changes were tough to implement in a struggling economy. "It's very hard to initiate those changes if peoples' standards of living are dropping by 25 percent. Over time, eventually, the political system -- the society -- can't sustain it," the US leader said.
Ending ‘addiction’ to loans
Last month’s election triumph for Syriza, a radical left-wing party that was virtually unknown just a few years ago, suggests the patience of Greek voters has indeed reached its limit after six years of “shock therapy”.
In return for two bailouts worth €240 billion, Greece has been forced to impose savage spending cuts and tax rises that, critics say, effectively killed off any chance of economic recovery. After a six-year depression, GDP has shrunk by a quarter, industrial output has fallen by a third and millions have been pushed into poverty.
Syriza swept to power on a promise to ditch many of the unpopular measures that underpin the bailout programme. Its “national salvation” government has begun steps to reverse public sector layoffs, raise the minimum age, and freeze planned privatisations. But it desperately needs a let-off on austerity to deliver on its campaign promises.
Debt relief and Germany's economic miracle
Greece’s finance minister, Yanis Varoufakis, has embarked on a European tour to build support for a renegotiation of the bailout terms, which he has described as “fiscal waterboarding”. Athens also wants to restructure the country’s €310 billion debt, which stands at 175% of GDP.
After talks with his French counterpart in Paris on Sunday, Varoufakis said Greece would turn down a promised €7.2 billion loan from its creditors. "It's not that we don't need the money; we're desperate," he told reporters in the French capital. "We have resembled drug addicts craving the next dose. What this government is all about is ending the addiction."
France’s Finance Minister Michel Sapin gave Varoufakis a sympathetic hearing, saying Paris was open to some form of negotiation on the bailout programme, though ruling out a write-off of Greek debt. His British counterpart George Osborne was equally cordial – and non-committal – following talks in London on Monday. "It is clear that the stand-off between Greece and the eurozone is the greatest risk to the global economy," Osborne told reporters after the meeting, urging all parties to “act responsibly”.
The big test for Varoufakis, who travels to Rome next, will be his first visit to Germany, Europe’s guardian of austerity, which has shouldered the bulk of Greece's loans. The Greek minister is expected in Berlin in the coming days, though no meeting has been scheduled yet. German Chancellor Angela Merkel has repeatedly ruled out debt relief for Athens, warning Syriza’s government against unilateral action on austerity.
‘Compromise on all sides’
Greece's flurry of diplomacy saw Prime Minister Alexis Tsipras phone Mario Draghi, the head of the European Central Bank, late Saturday and book meetings with Italian Prime Minister Matteo Renzi, French President François Hollande and European Commission President Jean-Claude Juncker this week.
Tsipras has sought to calm jittery markets by saying he does not intend to renege on commitments to the EU and IMF. "It has never been our intention to act unilaterally on Greek debt," he told Bloomberg News at the weekend, in a sign that the Greek government is looking for a compromise with its creditors.
Greece’s youthful leader wants a new plan for fiscal stimulus in place by the end of May, with repayment of existing debt tied to Greece's ability to restore growth – a condition Germany secured in 1953 when its postwar debt was halved by international creditors.
On Sunday, his finance minister said Greece and its partners had to proceed "with one objective in mind - the prosperity of the average European citizen". It is an argument Obama echoed shortly after in his interview with CNN.
"Fiscal prudence is important, structural reforms are necessary in many of these countries,” Obama said, referring to the debt-laden countries of southern Europe. “But what we have learned in the US experience (...) is that the best way to reduce deficits and to restore fiscal soundness is to grow."
The US president has been a regular critic of Europe’s insistence on austerity measures, saying this had hurt growth on both sides of the Atlantic.
"When you have an economy that is in a free fall, there has to be a growth strategy and not simply the effort to squeeze more and more out of the population that is hurting worse and worse," Obama said, adding that a deal would require “compromise on all sides”.
Greece's Varoufakis embarks on EU charm offensive
Date created : 2015-02-02