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WSJ, Feb. 25 2015
Doubts Shadow Greek Bailout
by Gabriele Steinhauser
BRUSSELS -- Doubts over the willingness of Greece's left-wing government
to follow its creditors' orders on budget cuts and economic overhauls
spilled into the open Tuesday, even as eurozone finance ministers
approved a four-month extension to the country's bailout.
The deal with the eurozone and the International Monetary Fund removes
the immediate threat of a run on the country's banks, following several
weeks of big withdrawals by depositors. The extension of the 240 billion
euro ($273 billion) rescue package until the end of June staves off the
need for controls to stem the flight of money from the country that, in
a worst case, could have signaled Greece's expulsion from Europe's
currency bloc.
Yields on Greek bonds dropped sharply after the extension was granted,
while shares on the country's stock market jumped. Athens's main stock
exchange closed almost 10% higher, primarily led by banks. Interest
rates on Greek debt maturing between 2017 and 2019 fell by as much as
four percentage points.
But questions were raised by some of Greece's creditors -- most notably
the IMF -- over the measures that the government proposed to secure the
bailout extension, exposing new cracks among the countries and
institutions that have kept the nation afloat for nearly five years.
The legislation that Alexis Tsipras, Greece's young prime minister, must
implement to address these concerns -- and get new rescue money -- will
test his coalition and the voters who swept him into power last month.
"Greece has won a few weeks," said a senior Finance Ministry official in
Athens, adding that the country now had to focus on collecting overdue
taxes and fighting corruption.
Greece has to race to satisfy its creditors. Without the bailout, it
could run out of funds to repay debts in a matter of weeks. An important
test will come in March when some 1.5 billion euros in IMF loans are due
to be repaid.
Mr. Tsipras and his finance minister, Yanis Varoufakis, whose blazing
antiausterity rhetoric had fired up support at home in recent weeks,
made a point of staying out of the public eye Tuesday. There they would
have faced questions over policy reversals -- including pension cuts,
increases to the value-added tax and measures that make it easier to
fire workers -- that they had ruled out as recently as last week.
"It is difficult to determine how the government can fulfill its
promises, including the debt write-off, with this agreement," Costas
Lapavitsas, a lawmaker for Mr. Tsipras's Syriza party, told Greek TV
channel Star.
Mr. Tsipras appears to be left considering the same measures that felled
the previous government of center-right Prime Minister Antonis Samaras.
The IMF -- responsible for roughly one-sixth of Greece's overall bailout
-- argued that the new measures outlined by the government didn't go far
enough.
"In quite a few areas . . . including perhaps the most important ones,
[the Greek proposal] is not conveying clear enough assurances that the
government intends to undertake the reforms," the IMF's managing
director, Christine Lagarde, said in a letter published minutes after
the finance ministers approved the extension.
Similar concerns, albeit in much more muted language, were voiced by the
European Central Bank and some eurozone governments.
The Washington-based IMF has been pushing views unpopular with some of
Greece's other creditors -- most prominently the European Commission,
the European Union's executive arm -- since the start of the crisis.
Rich eurozone countries, including Germany and Finland, have latched
onto the IMF's hard-line views and made more aid from the eurozone
conditional on the fund's support.
In contrast to the eurozone, whose weaker members would face the
immediate fallout of renewed market panic over Greece, the IMF
represents 188 states around the world, many of which are already
grumbling over the fund's disproportionate support to a small European
country.
It was the IMF -- along with Germany -- that in 2012 pushed through a
restructuring of Greece's privately held debt, against initial
resistance from the European Commission and a majority of eurozone
governments. And according to European and Greek officials, the IMF was
also the main obstacle to disbursing the latest 7.2 billion euro
disbursement of the country's bailout last fall when the previous
government was still in power.
Tuesday's letter from the IMF underlines that the fund is prepared to
remain combative.
"It forces Greece to be serious, and it forces the eurozone to say,
'Look, we're not going to give you any of this bridge financing unless
you start working on implementation on Day One,'" said Jacob Kirkegaard,
a senior fellow at the Peterson Institute for International Economics in
Washington.
The IMF's complaints set the stage for several months of difficult
negotiations between Athens and its creditors. Before any new cash from
the existing bailout can flow, the government in Athens will have to
flesh out the measures it presented Monday night and actually pass them
through its Parliament.
That could test the durability of the ruling coalition, which is
dominated by left-wing activists who have campaigned against the
bailout's austerity measures. The coalition also includes right-wing
nationalists eager to assert Greek sovereignty.
The government barely made a midnight Monday deadline to send a
seven-page letter explaining its plans for the coming months to the
eurozone, the IMF and the ECB. The submission was preceded by weeks of
often acrimonious back-and-forth among Athens, Brussels and Berlin, and
a late-night cabinet meeting over the weekend.
In its letter, Greece set out a range of measures, from cutting the
number of ministries to 10 from 16 to reducing fringe benefits for
ministers, lawmakers and other top officials. It also promised to fight
tax evasion and close loopholes -- steps that previous governments had
been reluctant to take and which received an explicit thumbs-up from Ms.
Lagarde.
But on any measures that attack benefits or workers' rights, the
government remained vague, sticking with words like "streamlining" or
"rationalizing" rather than pledging explicit cuts. It also included
policies that could raise costs, including a new "basic income scheme"
for early retirees and increases to the minimum wage.
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