Greece, the Review and the Varoufakis solution

It was not surprising that there was not much progress on  the Greek bailout review in last Monday’s Eurogroup meeting. In a statement after the meeting  Jeroen Dijsselbloem, repeated that a lot of progress has been made and that some  “key issues” remain unresolved in negotiations between the Greek government and institutional creditors adding  that there is no guarantee that enough progress will be made by April 7 to conclude the second review of the Greek review.

Eurogroup President Jeroen Dijsselbloem, whose Labour party slumped from 38 seats to nine making it unlikely that the Dutch finance minister will retain his place in the Eurogroup, had already said in an interview with FAZ before the meeting, that he doesn’t see Greece’s bailout program being  completed in March and not even in  April.

One of  the key issues that remains unresolved ( besides lowering the tax threshold, further cuts in pensions and the fiscal targets beyond 2019),  is the matter of the IMF participation on which, to a large extend, the conclusion of the second review depends. And while the Fund is trying to conjure up ways of dressing up the debt as sustainable to pass it through its own board, the completion of the second review is not likely.

At the same time,  the European lenders do not see the conclusion of the review as an urgent matter. They can sit tight and wait until July  a 7.5 billion euro repayment to themselves falls due, and Greece will once again be faced with the dilemma of either default or accepting the lenders terms, no matter how unreasonable they might be.

On the other hand Athens is keen to accept legislating for a further austerity package that will continue beyond the end of the current bailout programme believing that it will be allowed to participate in the ECB’s QE programme that will allow the cash strapped country to regain some liquidity.

But despite the Greek government’s optimism, participation in the QE programme is not by any means automatic. In February, ECB president Mario Draghi stated that there are two conditions for allowing Greece to join. The completion of the second assessment and the  sustainability of the Greek debt, which the ECB judged unsustainable in 2015. An ‘independent’ assessment on the sustainability of the Greek debt will have to be carried by the Bank before Greece is allowed to participate.

Last week former finance minister Yannis Varoufakis said in a Greek TV interview that in his opinion, the third bailout programme was designed to fail, the aim being to push Greece out of the euro, according to the Schaeuble plan.

Varoufakis is not concerned with the delays in the  completion of the review. On the contrary, he sees completion of the review on the terms demanded by the lenders as ‘catastrophic’ for the Greek economy; it will bring the country a step closer to Grexit, devastating what’s left of the private sector with increased taxation and the economy with impossible to meet surplus targets for ten years after the completion of the current bailout programme in 2019, something that will almost certainly prolong the recession.

“The only way to avoid return to the drachma is to fear it less than the closing of the review” said Varoufakis, advocating rupture with the lenders.

Varoufakis may not be more right or wrong than anyone else making predictions and speculating about the handling of the Greek economy. But after years of playing by the lenders rules and the resulting  disastrous consequences for the country,   maybe now is the right time for rupture with the lenders.