The end of the Troika?
The discussion, still in its early stages, will gather pace as Greece and its euro zone backers chart a new course for the country with its second European bailout program due to end later in 2014.
Dismantling the troika, the trio made up of the European Commission, European Central Bank and International Monetary Fund and likened by some in Greece to the German Nazi occupation, would likely be central to the new plan for Athens.
After Ireland and Portugal exited bailouts earlier this year, the EU/IMF inspectorate is now only active with Greece and Cyprus and many experts have expected Athens to require further help.
Switching to a ‘reform-for-debt-relief’ scheme with lighter supervision could sooth public frustration and help bolster the coalition government at the expense of far-left opponent SYRIZA, which has promised to tear up Greece’s international bailout agreement and is leading in the polls.
National elections could come as early as next year and a SYRIZA-led government would present a headache for the euro zone.
Under the latest thinking, policing by the troika could be replaced by a special task force from the European Commission with biannual check-ups rather than every three months, provided Greece does not require fresh funds.
In return, Athens would commit to a six-year plan of reform, where milestones would be rewarded with debt relief, such as extending the time for repayment, rather than granting additional loans.
“There would be no troika,” said one official familiar with the matter, who asked not to be named. “There must be Greek ownership of reform. The Greeks have until October to come up with a program, which would be decided by December for the start of 2015.”
As a fall-back, Greece could be given a precautionary line of credit from the euro zone, a second official said. If it was used, stricter supervision of Greece would resume. The IMF would meanwhile continue its own bailout program until 2016, continuing to exert influence on Athens.
“It was a mistake not to give Portugal a precautionary credit line,” the official said, referring to Lisbon’s conclusion of its bailout without such back-up. “You couldn’t make the same mistake with Greece.”
Scrapping the troika would mark the end of a model of enforcing economic reform in Athens that many in Greece and the European Parliament have criticized as heavy handed.
A crucial review of Greece’s bailout by the troika will begin with talks in Paris in September after Athens argued that lengthy audits in the Greek capital hurt the country’s morale.
Crucially, the new Greek program would be dubbed one for ‘growth and employment’ instead of having a focus on budget savings. It would be drafted in the first instance by Athens rather than officials in Brussels or elsewhere.
The launch of the new six-year plan would allow the European Central Bank, where policymakers believe its new function as bank supervisor would rule out a role in the troika, to quit.
In order to be workable, however, such a scheme would need to overcome obstacles. For one, if Athens needed fresh money, were the cost of supporting its banks to rise for example, it could require a fully-fledged bailout. Officials in Athens are hopeful another bailout can be avoided.
“We don’t want a new austerity program. We don’t want new money,” one senior Greek government official told Reuters. “We want any alternative to be growth-and-employment oriented.
“We are committed to reforms, but we don’t want a knife to our neck because this hurts the ownership of these reforms,” said the official, adding that the idea of staggered debt relief for reform could work so long as the monitoring ‘has no similarities’ to the troika.
As well as appealing to Greek Prime Minister Antonis Samaras, such a ‘reform-for-debt-relief’ scheme is likely to receive a sympathetic hearing from European Commission President-elect Jean-Claude Juncker. The pair met in Athens on Monday.
Were Juncker to help dismantle the troika, he would help Samaras in his tussle with SYRIZA. Early elections could be hastened if Samaras fails to win enough support among Greek lawmakers for his candidate in presidential elections. President Karolos Papoulias’ term ends in March 2015.