From The Financial Times

April 4, 2019

Can the EU bind future governments to promises made by previous prime ministers?

It’s a Brussels dilemma that goes beyond the difficulties posed by a certain soon to be departing member state.

Greece is also becoming a test case for how the EU can wield control in a country that has escaped its leash in one sense.

Athens exited nearly a decade of European bailouts last summer. After receiving hundreds of billions of euros in return for painful and swingeing economic reforms, the country is back borrowing on the debt markets.

But the route to financial independence rarely runs as smoothly as that.

Greece’s suffocating debt pile means it will be paying back European creditors for the next three decades. Eurozone capitals will be demanding fiscal discipline and budget surpluses from Greek governments until they get their money back (pencilled in some time around 2060).

But in the absence of financial market pressure or the stringency of formal bailout programmes, how can the EU make the Greeks play ball?

Brussels officials have been confronted with the dilemma in recent weeks during Greece’s first real post-bailout flare up.

Athens is due to receive nearly €1bn in European Central Bank profits owed to the country in return for a series of promised reforms. The cash is earmarked to repay expensive IMF loans and help ease the government’s debt financing pressures.

But the leftwing Syriza government — liberated from the obligations of a bailout and facing an election year — has other ideas.

Hawkish governments — such as the Germans, Dutch and Finns — are unhappy with the generosity of a planned Syriza insolvency law designed to protect homeowners from foreclosures. The lenders want the leftwing government to limit the scope of the measures which have been extended to relief on business loans as well as mortgages.

Three months of wrangling between Athens and the EU institutions over the law has delayed the release of the €1bn tranche.

For Alexis Tsipras, Greek prime minister, giveaways are tempting.

His party is trailing the centre-right New Democracy in the polls ahead of a likely autumn election. The new foreclosure measures also expire at the end of the year, giving him a handy pre-electoral boost with voters fed up of the austerity measures his party succumbed to in the white heat of the crisis.

The €1bn, although helpful, is not a must-have as Greece’s liquidity situation is steadily improving. Eurozone officials hope to iron out the differences and give Athens a green light at a eurogroup meeting in Bucharest on Friday.

But for Brussels and eurozone capitals, the episode may well be a harbinger of bigger difficulties to come in Greece.

Should Mr Tsipras lose his election, as polls suggest, his successor will be even less bound to the promises to run bumper budget surpluses and reform the economy than Syriza.

As with Brexit, politics has a habit of getting in the way of the best laid plans.

Link to Full Article in The Financial Times