Migration Crisis Complicates Greece’s Efforts to Finish Bailout Negotiations

Struggle on two sides risks fragile government of Prime Minister Alexis Tsipras

By NEKTARIA STAMOULI and  MARCUS WALKER
Feb. 26, 2016 5:26 a.m. ET
The Wall Street Journal

ATHENS—A new deadlock over Greece’s finances is complicating last year’s brittle bailout deal, just as the country nears a showdown with the rest of Europe over efforts that would keep migrants stuck within its borders.

The struggle on two fronts risks overwhelming the fragile government under Prime Minister Alexis Tsipras and his ruling left-wing Syriza party, which barely managed to keep Greece in the euro last summer, even before the migration crisis deepened the strains between Greece and the rest of Europe.

The International Monetary Fund says it can’t lend to Greece without radical spending cuts by Athens or costly debt forgiveness by Berlin. Greece’s key European interlocutor, German Chancellor Angela Merkel, is under such political pressure at home over barely controlled migration inflows that she’s less able than before to take an unpopular stand over Greece’s debt woes.



The IMF’s tough demands for far-reaching fiscal retrenchment go well beyond what Syriza has signaled it is prepared to swallow, making Mr. Tsipras’s goal of a deal to unlock bailout money by late March improbable, European officials say. Some analysts believe Mr. Tsipras might opt for early elections if he can’t break the impasse with creditors.

Meanwhile growing tensions and finger-pointing between Greece and other European Union countries, including Austria and Slovakia, over migration is deepening many Greeks’ perception that their country is being made a scapegoat. A backdrop of popular hostility toward the EU—which a record 81% of Greeks now mistrust, according to a European Commission survey released on Monday—makes it harder for Mr. Tsipras to sell fiscal austerity measures demanded by European creditors and the IMF.

“The challenges are growing exponentially,” said Mujtaba Rahman of political-risk consultancy Eurasia Group. “The convergence of the refugee problem with problematic bailout politics represents something of a doomsday situation for Tsipras.”

As Balkan countries on the migration trail from the Middle East to Germany restrict the number of migrants who can pass, Greece is scrambling to prepare for the possibility of several hundred thousand refugees and other migrants who could find themselves trapped on its territory.

In a country low on cash and logistical capabilities, the threatened chaos—and the perception that Europe is sacrificing Greece to solve its migration problem—could undermine political stability, analysts say.

“At the moment, no party apart from (fascist movement) Golden Dawn has tried to take advantage of the situation, because nobody has a strategy,” said Wolfango Piccoli, an analyst from consultancy Teneo Intelligence. “But if the borders are sealed, political clashes will not be avoided and it will be impossible for anyone to handle politically.”

Greece needs billions to avoid bankruptcy this summer. German officials say the eurozone bailout fund will remain shut until Greece also agrees to a new loan program with the IMF.

The IMF is increasingly pessimistic that the math of Greece’s bailout, which strained credulity from the start in 2010, will ever add up.

Mr. Tsipras’s government is offering creditors austerity measures worth about 1% of gross domestic product this year, including a pensions overhaul that avoids outright cuts to current retirees’ benefits. Mr. Tsipras is struggling to sell those measures to Syriza lawmakers, who fear mounting anger from Greeks facing higher taxes and levies.

The IMF, however, says only much bigger cuts of 4% to 5% of GDP during the next three years can save the bailout plan. The bulk of savings would have to come from pension cuts, because other public spending has already been “cut to the bone,” and taxes are already stiflingly high, the IMF argues.

Unless the IMF abandons its math, or Germany abandons the IMF, Mr. Tsipras and his wafer-thin governing majority will have to pass austerity on a much bigger scale. Otherwise, Greece faces bankruptcy in July, when large bonds held by the European Central Bank fall due, reviving the specter of euro exit.

If the government is unable to reach a deal and calls elections, the problem could land in the lap of opposition conservatives New Democracy, who lead Syriza in opinion polls. Conservative leader Kyriakos Mitsotakis is seen as more creditor-friendly, but his party would have equally as much trouble with the IMF’s pension demands.