EUROPEAN DIARY:The euro group leader's talk of 'soft restructuring' for Greek debt, and a few other missteps, have led some to ask if he retains his political grip
EURO GROUP president Jean-Claude Juncker broke a taboo last week when he acknowledged that Greek debt might be partially restructured, something markets long suspected but which was denied for months. Not for the first time recently, his candour went down badly with his peers.
Juncker, a wily figure who has been prime minister of Luxembourg for more than 16 years, is a warrior of high rank in the battles against the sovereign debt plague. A canny operator he may still be, but whispers in Brussels suggest his clout is on the wane. This follows a series of apparent missteps, none of them big enough to undermine him completely but enough nonetheless to raise questions.
It was a week ago today when Juncker raised the prospect of a “soft restructuring” of Greek debt. While insisting he was opposed to “hard restructuring” – code for full-blown default – his words were enough to set a ball rolling. Despite months of denial, it seemed the EU authorities were finally admitting that Greece’s expanding debt mountain might be insurmountable.
In a drama that has seen more than a few about-turns, this looked like yet another pivotal moment. Athens more or less confirmed the news, but the European Central Bank (ECB) took fright. Senior members of its executive board issued dire warnings.
There was no difference between “hard” and “soft” restructuring. To contemplate them was to contemplate catastrophe, they said.
The night before, Juncker presided over a meeting of euro zone finance ministers. It was at that gathering that the concept of Greek debt “re-profiling” was introduced, a novel scheme in which Athens would seek voluntary agreement from its creditors to lessen some of the load from its considerable public debt by seeking longer maturities.
This smelt rather like restructuring: no matter how it is dressed up, a form of default on the original terms of a debt contract. Yet ministers wanted first to ensure Greece accelerates its fiscal reforms. That is crucial.
Juncker’s remarks certainly had the ring of truth, but sources briefed on the ministers’ meeting said there was no agreement whatever to open the door to any restructuring at that point. Although the semantic gap between re-profiling and restructuring may be so slim as to be insignificant, certain ministers are said to have been furious with what they considered to be a solo run by Juncker.
For one thing, such remarks from the leader of the euro zone ministers suggested they had achieved consensus on one of the slipperiest questions they face. The view of some in the room was that they had not. Although some powerful individuals see merit in the notion of longer debt maturities – by whatever name – the logistics are uncertain and the extent of potential benefits from a voluntary initiative are far from clear.
What is more, the intervention lessened the scope for political leverage with Athens. In addition, the public conflict with the ECB smacked of yet more disarray and disunity in the very heart of the euro zone’s defences.
The same sense prevailed 10 days previously when Juncker convened a select gathering of finance ministers in Luxembourg. As news of the meeting leaked to the German media, his office continued to deny that any meeting was under way even as other sources confirmed it. Such lies were impossible to sustain, but Juncker defended them later on the basis that they were designed to prevent financial market speculation. It was teatime in Europe but Wall Street was open.
This dubious approach raises legitimate questions over his own credibility. Henceforth, there would be ample reason to disbelieve any denial from his office on any sensitive topic. Given the important post Juncker holds in the euro zone, that is no small thing.
Only a fool would believe that politicians never lie and always tell the whole truth. But trust flows from transparency. Accordingly, official observers of the Luxembourg affair were astonished at the lack of a simple “no comment” in response to queries about the meeting.
Still, the denial was in keeping with Juncker’s own beliefs about market turbulence. The previous month in Brussels, he indicated to a public forum that leaders need not tell the truth in such circumstances.
“When it becomes serious, you have to lie,” he said.
At the same meeting, Juncker said economic and monetary policy should be discussed only behind closed doors in “dark secret rooms” in order to prevent dangerous movements in financial markets. “I’m ready to be insulted as being insufficiently democratic, but I want to be serious.”
In European circles, inevitable questions arose about the wisdom of making public speculations of this nature. Juncker, who was finance minister for six years before he became prime minister, was one of the main architects of the Maastricht Treaty. After 22 years at the heart of European economic policy, he is held in immense regard by his many admirers. But some are wondering whether his political grip is loosening.
