Can the world take the risk of a new financial armageddon so that IMF doesn’t lose face towards Tsipras?

"It will be this coming weekend that we impose capital controls in Greece, like you did in 2013.", Tsipras would might as well be saying to the President of Cyprus. From left to right: Mr Alexis TSIPRAS, Greek Prime Minister; Mr Nicos ANASTASIADES, President of Cyprus (Council TVNewsroom, 10/06/2015).

“It will be this coming weekend that we impose capital controls in Greece, like you did in 2013”, Tsipras would might as well be saying to the President of Cyprus. From left to right: Mr Alexis TSIPRAS, Greek Prime Minister; Mr Nicos ANASTASIADES, President of Cyprus (Council TVNewsroom, 10/06/2015).

The next meeting of the Finance Ministers of the Eurozone (Eurogroup) is convening tomorrow and the main topic will be the Greek deal with the three institutions. However, the fact that the negotiations haven’t yet reached an accord from both sides makes the agreement very unlikely.

That is the reason why the European leaders are preparing for an extraordinary summit soon in order to speed up and sign a deal with the Greek government. In principle they don’t want to lose time which can be used to vote the outcome of the agreement at the national parliaments.

Further, the Greek prime Minister, Alexis Tsipras, stated at the meeting of the parliamentary group of Syriza that the negotiations are at the final stage. This is oxymoron since the negotiating Greek team left Brussels last Sunday and put a stop to the discussions for a prominent deal. Alexis Tsipras went on his sharp critique and pointed the finger to the institutions and especially the International Monetary Fund (IMF), which are responsible for the situation that prevails in the country, according to his saying.

The stance of the IMF in the Greek issue is diametrically opposite to the one of the European institutions. The former supports measures that are not in favor of Greece’s economic growth and makes the negotiations even harder a few days before the end of the extension of the Master Financial Assistance Facility Agreement (MFFA). As far as the EU institutions are concerned, the European Commission (EC) appears to support measures that will not affect too bad the lower and middle class of the Greek citizens, although the Greek government claims the opposite.

Eurogroup will not save Greece this time

The next Eurogroup which will take place tomorrow in Luxembourg is quite unlikely to make up any solution for the Greek problem since the negotiations in technical level have not yet been concluded. The situation this time is certainly not as it was at the Eurogroup of February 20, when the Greek government cut a “successful” deal to extend the current programme for 4 months.

The Greek government has stated through its “superstar” Finance Minister, Yanis Varoufakis, that will not present to the rest Finance Ministers with a list of extra measures and a renewed proposal after their last unsuccessful meeting. The latter makes the upcoming Eurogroup to seem as another bureaucratic meeting with no remarkable outcome.

Solution at a political level

The institutions together with the European leaders are organising their next gathering in case there will not be a deal at Thursday’s Eurogroup. The next scheduled EU summit is on June 25-26 but obviously the EU leaders cannot wait that long and should act immediately for Greece’s and Europe’s sake.

Moreover, the technical negotiating teams in Greece and the three institutions have some crucial points that need to agree upon in order to get the green light for a deal. Both sides stand still at their views regarding Greece’s “red lines” and a political intervention seems at this point to be the only solution. That is why Angela Merkel together with Francois Hollande must take the matter on their own hands and propose a sustainable programme for Greece that will prevent a Grexit and help Greece finally return to growth and investments horizons.

Alexis Tsipras accuses the institutions

Yesterday, the parliamentary group of the leftist party Syriza convened in Athens to discuss the developments of the current negotiations with the creditors. The Greek prime minister was critical towards the institutions and particularly the IMF, making clear that they are responsible for the dark well the negotiations have fallen into. Now they are not proposing reasonable measures but are promoting austerity reforms that are supposed to help the already devastated Greek economy. Furthermore, Mr Tsipras stated that “an agreement is very close and the government will continue the negotiations till the end with soberness and calmness”.

However, this strict stance against the creditors must have an ultimate cause. The Greek prime Minister seemed to willingly desire to unite all the MP’s of Syriza and promote the idea to the Greek people that the institutions are the only responsible for not coming to a deal. This is true to some extent since Syriza has compromised crossing some of its “red lines” whereas the institutions seem to be stubbornly reluctant to change their initial proposals.

IMF vs. EU institutions

On the one hand, the IMF continues to support harsh measures to be implemented by the Greek government in order to agree to provide financial aid. The past has shown that the IMF has made a number of dreadful mistakes, which were actually admitted, in the estimation of the size of recession that austerity would bring to the Greek economy. Consequently, the IMF has better ease its tone now towards the negotiations that are currently taking place in order to close a profitable deal for all the parties.

On the other hand, the EC through its president made clear that Athens should accept the measures of the institutions or provide equivalent ones. More specifically, Jean-Claude Juncker stated that the negotiations haven’t come to an agreement and also with an “angry” tone he stressed that the Greek side misinformed and misled the Greek people by changing his exact saying.

The president of the EC even went on by saying it was a mistake to increase the Value Added Tax (VAT) of the medicines and electricity and proposed moderating reductions to the defense expense. However, there are three institutions that decide on this matter and it seems that the EC’s opinion on some measures has not been heard.

The future

The final deadline for Greece ends in just 14 days. It is now or never that both sides must sit down and find a solution. But the solution to this matter should come only if every side shows willingness for compromises. Maybe an alternative could be for the EU leaders to create an “exclusive” European programme for Greece and leaving the IMF outside.

All in all, the political elite of the EU knows very well that a Grexit is not beneficial for anybody and that is why reason should prevail in the end. The Greek thriller is more than ever now threatening the entire edifice of the global economy and is in full development. It remains to be seen whether in 2015 the trigger for a new global financial crisis will be released in order to save a few billion euros by rescuing a weak but necessary part of the chain.

Follow Chris on Twitter @CAnyfantis

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