14 May 2012

Greek crisis: talks continue on Tuesday

Negotiations continue on Tuesday to resolve the turmoil in Greece. Despite little optimism that a coalition government will be formed, an influential adviser tells Channel 4 News that all is not lost.

Greece’s political landscape has been in disarray for a week since the election left parliament divided between supporters and opponents of the 130bn euro EU/IMF bailout, with neither side able to form a government.

On Monday, President Karolos Papoulias summoned party leaders to negotiations, but the winner of radical leftist party, Syriza, which came second in the election, refused to attend. Another party, the Democratic Left, has ruled out joining a coalition that does not include Syriza. The support of at least one of these parties is crucial if the centre-right and socialist parties are to form a coalition.

Both parties will attend talks on Tuesday, but Socialist leader Evangelos Venizelos said: “Things are very difficult. I’m not optimistic.”

A Greek government minister has warned that the country may descend into civil war if the country is forced out of the euro.

If new elections are held, polls suggest Syriza, which opposes the austerity measures forced on Greece by the EU and IMF in return for financial aid, would come first. This raises the prospect of an anti-austerity coalition forming a government, with implications for the European single currency.


But Charles Dallara, who worked for the IMF and US Treasury and was the lead negotiator when Greece re-structured its debts, said that talk of a ‘Grexit’ may be premature, saying the prospect of a pragmatic new leadership in Greece may still want to work with Europe to resolve their financial crisis.

“I am part of a dwindling group of those who do not believe it’s a foregone conclusion that Greece will leave the Eurozone. I believe the cost to Greece, the cost to Europe, the cost to the entire global economy, may still be enough to cause Greek politicians and European politicans to pause before they pull the trigger on a Greek exit,” he told Channel 4 News.

“I think a Greek exit is so unlikely to be well managed, so likely to be disorderly, that it will pose a threat to financial institutions around the world. But more fundamentally, not just for financial institutions, for the global economy. It could well precipitate another global recession, the likes of which we are still trying to crawl out from. And that’s why at the end of the day, cooler heads may prevail here.”

He added: “I think this presents an opportunity for the Eurozone leadership to step back, and ask whether their approach to Greece and more generally, their approach to other struggling countries within Europe doesn’t need some substantial revision. Less focus on short term budget cutting, more focus on long term budget discipline and structural reform, and greater financial support from Europe.”

The impasse has gone down badly on the markets, with the euro plunging to a four-month low, European shares dipping 1.5 per cent and Britain’s FTSE share index suffering falls.


Spanish and Italian bonds were sold amid fears that the chaos in Greece could spread to these countries. On Friday, the Spanish government announced a clean-up of its banking sector, but this failed to appease traders.

German bonds gained, despite a trouncing for Chancellor Angela Merkel’s centre-right Christian Democrats in regional elections at the weekend. British bonds, known as gilts, also benefited.

Following the election of Francois Hollande to the French presidency, and the rise in support for anti-austerity parties in Greece, German Finance Minister Wolfgang Schaeuble said the European Union (EU) could not ease the rules on fiscal discipline for members of the single currency.

Mr Hollande wants the so-called “fiscal compact” amended, with more emphasis on the need for growth, but Mr Schaeuble said: “We can’t change treaties that have already been agreed after elections. President Hollande knows that cannot be done.”


Mr Schaeuble said Greece would “pay a high price if it left the euro”, adding: “Greece must become competitive and that cannot happen without pain.” Mr Hollande will hold his first ever face-to-face meeting with Chancellor Merkel in Berlin on Tuesday.

Greek government officials have warned that the country could run out of cash as early as the end of June if it does not have a government in place to negotiate the next aid tranche with its lenders.

“The country is up in the air,” financial daily Imerisia wrote on its front page, warning in an editorial: “The country is moving to the brink of collapse and hopes for restoring the political stability are fading away.”


President Papoulias must call a new election if he cannot persuade leaders to compromise. After a day of fruitless negotiations on Sunday, he invited politicians from the biggest three parties to return to the presidential mansion on Monday, along with a small leftist group.

Read more: Gain not pain - the end of austerity politics

But an official from the second biggest party, the radical left-wing Syriza, said its 37-year-old leader Alexis Tsipras would not attend.

The anti-bailout vote was divided among small parties but has now rallied behind Mr Tsipras. Polls show he would now place first if the vote is repeated, a prize that comes with a bonus of 50 extra seats in the 300-seat parliament.


Mr Tsipras has consistently refused to join a coalition government with the establishment conservative and socialist parties that ruled Greece for decades, but were punished by voters last week for their role in agreeing the EU rescue, which requires deep cuts in wages and pensions.

Mr Tsipras says he wants to keep Greece in the euro but the bailout deal must be torn up, a position shared by an overwhelming majority of Greeks but regarded by many in Brussels as untenable. European leaders say tearing up the bailout would require them to cut off funding, allow Greece to go bankrupt and eject it from the European single currency.