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Reality at odds with rhetoric

Reality at odds with rhetoric

Eurogroup discipline for Tsipras and Macron

by Danae Kyriakopoulou in London

Fri 15 Sep 2017

It was an unusual summer for Greece, without the familiar drama. Protests were scarce, the number of refugees entering the country fell significantly, and the government returned to financial markets with a €3bn bond issue. Hope and optimism imbued the remarks made last week by French President Emmanuel Macron and Greek Prime Minister Alexis Tsipras.

Speaking at the Pnyx hill beneath the Parthenon, where ancient Athenians hosted their popular assemblies, Macron told the city's inhabitants, 'I want to talk to you about a new Europe.' He emphasised sovereignty and democracy, castigating International Monetary Fund involvement in euro area affairs and obliquely criticising the German approach of technocratic economic management.

Tsipras' remarks a few days later at the 82nd Thessaloniki international fair – where Greek prime ministers traditionally set out their goals for the coming 12 months – echoed Macron's optimism. He described the French reformist's visit as an indication the country is moving from 'Grexit' to 'Grinvestment'. He is confident Greece's nine-year recession will end this year and determined to complete the third review of the bail-out programme 'as soon as possible'.

Reality, however, has been at odds with this rhetoric, revealing the government's ambivalence towards investment. Delays in issuing permits for a gold extraction project in northern Greece on environmental grounds led Eldorado Gold, the Canadian mining firm and Greece's largest foreign investor, to declare it will suspend investment in the country, threatening thousands of jobs. Meanwhile the Central Archaeological Council failed to reach a decision this week on whether the plot of the former Athens airport constitutes an archaeological site, hampering plans for commercial development.

These concerns, alongside the outstanding legal travails of Andreas Georgiou, former head of Greece's statistics agency Elstat, will weigh on discussions at the Eurogroup meeting of euro area finance ministers in Tallinn today. Macron's plan for strengthening the European Union and deeper integration will be tested, with the 'deepening of the economic and monetary union' on the agenda.

One key issue will be the creation of a common euro area budget administered by a common finance minister. While Macron and German Chancellor Angela Merkel broadly agree on the idea, they disagree on the specifics. Paris wants a joint budget amounting to 'several percentage points of GDP' to help finance public investment and to mitigate economic shocks across the currency union. Berlin, in contrast, wants the budget to be made up of small contributions and devoted to rewarding structural reforms, with the main task of the finance minister being to provide coherence in euro area economic policy. Germany is advocating, too, the creation of a European Monetary Fund.

Jean-Claude Juncker, president of the European Commission, promoted a third way in his state of the union speech on Wednesday. He called for the appointment of an EU-wide minister of finance, who would take over as head of the Eurogroup. While distinct, his view is closer to Germany's, emphasising the putative minister's role in promoting structural reforms, and rejecting the need for a euro area budget.

The 24 September German parliamentary elections may have been an excuse for the euro area's 'wait and see' approach to such reforms. However, there is little chance of a significant shift in Berlin's position after the election. The question of who will be chosen to fill senior positions in European economic and monetary management, including the head of the European Central Bank and the Eurogroup, further complicates matters and will delay consensus. But, as always, the bilateral relationship between Germany and France will decide the future of Europe.

Danae Kyriakopoulou is Chief Economist and Head of Research at OMFIF.

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