EU Finance Ministers make plans for Greek default

Headquarters of IMF in Washington DC

At a meeting of the Eurogroup finance ministers in Riga Latvia on Friday, there was no breakthrough deal with Greece. The chair of the group of 19 finance ministers, Jeroen Dijsselbloem said that he hoped the meeting would create a sense of urgency that a deal had to be reached soon.

Many ministers criticized Greek finance minister Yanis Varoufakis for failing to come up with a list of reforms the group could accept. Greece has refused to budge so far on "reforms" to pensions and other demands that would go contrary to the anti-austerity program the main government party, Syriza, promised voters they would implement.

However, such measures are part of the requirements of the extended bailout loan. Creditors have made it clear that no cash will be released until they are satisfied the terms will be met. So far there is no sign that Greece is willing to do so.

Given the impasses so far, it is not too surprising that German Finance Minister Wolfgang Schaeuble hinted that the group was beginning to develop plans for a possible Greek default on its debt payments. Asked by reporters after the Friday meeting whether the finance ministers were working on a "Plan B" in case negotiations for funding Greece fail, Schaeuble said: “You shouldn't ask responsible politicians about alternatives.” He said that if he answered in the affirmative he could trigger panic. Schaeuble suggested that secrecy was necessary and drew a parallel with plans for German reunification in 1989.

French Finance Minister Michel Sapin said that there is just plan A: "There is only one plan, and that's Greece in the euro. Greece in Europe." The earliest next date for a deal is on May 11, just one day before Greece is scheduled to make a large payment to the International Monetary Fund(IMF). Pierre Moscovici, the EU top economic official warned:"We should move faster, because time is running out, financial difficulties are there as well as the commitments made. Greece must remain in the eurozone." Since May 2010 Greece has relied on a bailout loan of 240 billion euros to keep afloat. Austerity conditions imposed have ruined the economy which has shrunk by one quarter and also increased unemployment with almost half of young people unemployed and about a quarter overall.

In an article, in Al Jazeera, Mark Weisbrot, suggests that the strategy of  Greek's creditors is to make things so difficult for the left-leaning Syriza government in Greece that support for it will be undermined and it will be ultimately replaced. Already the lack of a deal and possible exit from the eurozone has caused huge runs on Greek banks and depositors worry that their euros may eventually be turned into drachma with huge losses in value. The European Central Bank is cutting off liquidity to the Greek banks as well, as Varoufakis has complained. Weisbrot notes that even many IMF economists believe that the demands being made on  the Greek government are too severe.

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Reza Moghadan, former head of the IMF European department wrote recently in the Financial Times:  “Europe is demanding implementation, in the next few weeks, of a long and comprehensive list of actions that previous governments were unable to deliver in the space of a few years.”  

These impossible demands make sense if the aim is for eventual "regime change". However, it is not clear what good this would do as long as the creditors continue the present policy of demands that are politically disastrous for any Greek government to try and satisfy. However, insisting on continuing disastrous policies seems to be a hallmark of  EU negotiations with Greece

Sources: 
http://news.yahoo.com/greece-offers-concessions-talks-creditors-063638117--sector.html
http://www.dw.de/finance-minister-sch%C3%A4uble-hints-at-preparations-for-a-plan-b-on-greece/a-18408886
http://www.ctvnews.ca/business/there-is-only-one-plan-and-that-s-greece-in-the-euro-french-official-says-1.2344674
http://www.voanews.com/content/plans-for-potential-greek-exit-from-eurozone-played-down/2734353.html