Procrastination

We hear that negotiations about a third rescue package for Greece are well under way, and Brussels hinted to the possibility that the package will be ready for sign off as early as Friday. This seems not to be in the interest of Berlin, though. Rather then quickly finalizing the third program Berlin argues that a package for more then Euro 86 bn needs to be carefully designed, and not being rushed through the instances. How desperate Berlin wants to get the negotiations dragged on is best shown by the argument from this weekend that Greece must first solve the refugee crisis before it gets new funds. The reason for procrastination is simple: The whole package under negotiation is splitting Syria apart, and Berlin seems to hope that this will lead to a new government, in the best case to a government that takes full ownership of the rescue package. Then there is the IMF issue. Christine Laggard has been alerted by her staff that Greece is no longer qualifying for a IMF engagement due to its too high debt ratio. Chancellor Merkel on the other side always made clear that rescue package can only get support if the IMF is on board. Given that a IMF decision only will be made later in then year and that a positive decision only will be made if the European lenders come up with a significant debt relief, Germany has the interest to procrastinate.

A quick full agreement could be ratified by the Greek Parliament as early as end of coming week. Already on Friday, the Eurogroup could then approve the deal, and this would give ample time for those members who need a parliamentarian ratification of the package. Latter is the case in Germany, and again Schäuble and Merkel want to avoid such a process, not least as they have to deal with their internal critics, and they will become even louder this time, given that the IMF will be no longer on board.

There is quite some rationality in the acting of the German government. Leaving out the IMF is a huge deviation from the crisis management that was put in place 2010. Accepting the demand of the IMF for a significant debt relief is a huge political problem for the German government as its population is in no way prepared to accept such a decision. It does not help that a debt relief still is cheaper then an enforced Grexit. Latter is currently no option anyway as the Greek government changed its track and now has the interest to finalize the third program as soon as possible as this would allow for the planned domestic political makeover in September that may lead to new elections as early as October. In other words, the German and Greek political schedules are not at all complementary. It seems, though, that Greece has this time stronger cards as the austeritarian camp is not as homogeneous in regards to timing as it was in regards to the content of the package. Also, and more critically, it seems that the Greek government now sees advantages in early reform deliveries, in particular in areas that are closer to their heart. The underlying rational is that comes fall, the probability that debt relief in one form or the other will be back on the agenda is high. Greece would be in a much stronger position for this debate if the third package is solidly wrapped up by then.