Two European Union financial sagas return to the spotlight this week. One is Greece. The other is the financial transaction tax being pursued by 10 EU governments.
During much of last year, it would have been reasonable to bet that the FTT initiative had a better chance of succeeding than Europe’s efforts over half a decade to keep Greece in the euro area. Concerns about the health of Deutsche Bank AG and other European lenders add to the reasons why that’s no longer the case — and just how far the tables have turned will be on display when EU finance ministers gather in Luxembourg on Oct. 10-11.
Euro-area finance chiefs will decide on Monday whether Greece, in its third international rescue program since 2010, qualifies for another disbursement of aid. At stake is a 2.8 billion-euro ($3.1 billion) payout tied to Greek overhauls in areas in such as pensions, bank governance and the energy market.
The signal from numerous European officials including EU Economy Commissioner Pierre Moscovici is that the Greek government of Prime Minister Alexis Tsipras has done enough to win the transfer, which is what remains of a 10.3 billion-euro tranche that euro finance ministers approved in principle in late May.
“I hope that we will be able to conclude on this point,” Moscovici said on Oct. 4. “Major legislative initiatives have been taken in virtually all sectors of the economy.”
The broader outlook for Greece remains clouded. The European Commission expects the Greek economy to shrink in 2016 — marking the eighth annual contraction in the past nine years. And the commission says the Tsipras administration should aim to complete the next bailout review by international budget inspectors as soon as November to help ensure a return to economic growth in 2017.
That target date would be ambitious for any government. The timetable is all the more ambitious when considering that the next review will touch on issues such as labor-market deregulation that are especially sensitive for Tsipras’s Syriza party, which has communist roots.
Two factors that may help provide government rigor:
-the prospect of debt relief offered by the euro area
-the possibility of the European Central Bank extending its quantitative-easing program to cover the country (ECB Executive Board Member Benoit Coeure could offer signals at an Oct. 12 appearance at a European Parliament hearing on Greece)
Back with the finance ministers, the Austria-led group of 10 EU countries working on a common tax on financial trades faces a make-or-break moment. The other nations are Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.
The FTT saga is almost as old as the Greek crisis. Forged in the wake of the 2008 financial crisis, it took concrete form in 2011 with a commission plan for levies on stock, bond, derivative and other trading as a way to curb financial speculation and get the industry to make a “fair contribution” — projected at 57 billion euros a year — to state budgets.
The proposal failed the following year to garner the needed unanimous support of EU governments and was revived in late 2012 by a smaller group of national capitals under European “enhanced cooperation” rules that require the participation of at least nine member states.
Four years on, amid persistent worries about the economic and political consequences, lingering question marks over the nitty-gritty and recent market jitters regarding the resilience of Deutsche Bank, the FTT initiative is hanging by a thread.
Belgian Finance Minister Johan Van Overtveldt has said he opposes the plan and wants to persuade partners in Belgium’s coalition government to withdraw, Slovenia and Slovakia are potential dropouts, and German finance chief Wolfgang Schaeuble has said the project may require an accord at global level — where EU allies already shot down the idea. Given that context, Austrian Finance Minister Hans Joerg Schelling has pledged to step down as leader of the FTT group should no decision be reached this week.
Few EU initiatives ever really get killed; they simply get shelved until the political winds change. The FTT plan may be a rare exception.