Five myths regarding the current refugee and migration crisis

Published on CapX

During the current refugee and migration crisis, a number of myths, often propagated to serve all kind of agendas, continue to hinder the search for solutions. Here is an attempt to debunk five of them.

First myth: “The solution is to force countries to take in refugees and spread them across Europe”

Germany and France want “binding quotas [for refugees] within the EU to share the burden”, according to German Chancellor Merkel. The idea of quotas was proposed by the European Commission as part of its “European agenda on migration”. Only in May, French PM Valls called the idea "a moral and ethical mistake". A number of member states, primarily from Eastern Europe, but also Spain still reject the idea to make this binding, which is why the EU Commission plans to make the “relocation” of 120,000 refugees across the EU voluntary.

This is a complete sideshow.

First of all, these 120,000 refugees would be coming from Greece, Italy and Hungary, so they are already within the EU, which is supposedly safe.

Secondly, this plan is being developed after the failure to reach the target to relocate 40.000 refugees from Italy and Greece, following the trusted European Commission practice “When in trouble, double”.

Thirdly, if Poland would have to take in an estimated 9.000 refugees and Spain 15.000, these people can easily travel to where the jobs are: Germany, given that Poland and Spain are members of the passport-free Schengen zone.

Fourthly, if Merkel is really keen on damaging the EU’s brand, boosting support for anti-migration populists while pitting EU member states against each other, all without helping a single refugee, forcing countries to take in refugees who’re already in safety anyway is the way to do it.

The blame game just isn’t healthy. Germany is willing to welcome up to 800.000 people this year, almost quadrupling the amount, but it only welcomed a very average number of refugees - per capita - last year. Switzerland welcomed four times as many refugees per capita last year and the Netherlands welcomed 50% more than Germany. Did any Swiss or Dutch politician lambast Germany last year?

Migration is a sensitive issue everywhere in the world. It’s possible to convince people to allow more migrants in, but it’s a bad idea to impose it. Spreading of refugees has little do with helping refugees.

Last but not least, European Commission President Jean-Claude Juncker apparently wants that fines are being imposed on member states that opt out of his proposed relocation mechanism. These sanctions would be paid into a special fund that would be used to subsidise the countries that take part in the scheme. More than 1.5 billion euro would also be used “for the regions from where most of the migrants originate”, ignoring how EU funds amounting to 13.3 billion euro have often served to strengthen corrupt cronies in the EU’s Southern neighborhood between 1995 and 2013. We can only wonder if Juncker hasn’t secretly become a paid agent of one of Europe’s populist anti-migration parties, given that these kind of ideas are likely to boost support for them.

Second myth: “The solution is to end Schengen or increase EU border controls”

The passport-free Schengen-zone, which includes 26 countries and is now incorporated into the EU Treaty, is coming under severe fire. Last month, the Saxon branch of Angela Merkel’s party called for a discussion on suspending Schengen. Theo Francken, the Belgian State Secretary for Migration has expressed what many people think, when stating: “When I see that in some places there almost aren’t any controls at the borders [of the EU], then internal controls will be needed.” Also Hungarian PM Orban has called border control “the real issue”.

Would ending Schengen, which already offers a lot of room for border controls, solve much, however?

According to EU border agency Frontex, “most of those who currently reside in the EU illegally, originally entered in possession of valid travel documents and a visa whose validity period they have since overstayed”, while adding that “one of the biggest entry route for migrants into the EU is via international airports”, estimating that as many as 1.2 million irregular migrants may be entering the EU every year in this way. Obviously, the increased number of refugees trying to cross the Mediterranean is altering the balance, but this is just to say that even if Europe would manage to stop everyone at its external border, it would only deal with part of the pressure. Again Belgian migration secretary Francken pointed out that “my external borders are [the international airport of] Zaventem and [the port of] Zeebrugge”, who’re both located in Belgium. So abolishing Schengen – or kicking countries that fail to guard their borders out of Schengen - wouldn’t change that much, apart from destroying the great personal and economic benefits of passport-free travel for citizens and companies operating within the Schengen-zone.

It’s estimated that in the last 15 years, more than 23,000 people have lost their lives while attempting to reach Europe, while the flow hasn’t stopped. Also the brand new Hungarian fence on the border with Serbia proves disfunctional. To be fair, it’s probably possible to try alternative solutions to guard the Mediterranean border. One could try the Australian approach of returning refugees to where the boats embarked or to external centres where their asylum claims can be assessed. Since this policy was implemented, there has been criticism of the external centres but only a limited number of boats have tried to make the journey to Australia and no deaths have been reported, which means the policy deserves to be considered. This would also likely hit human smugglers hard. Furthermore, also posting European liaison officers at airports all over the world to control whether people aren’t trying to travel with false visa may help a bit, but all these controls would still leave the challenge of those overstaying their visas. At the end of the day, external protection or reinstating permanent border controls won’t make up for domestic shortcomings but would impose a high cost while only dealing with a part of the challenge at best.

Third myth: “The solution is to get rid of the “Dublin”- arrangement”

Italy’s Foreign Minister Paolo Gentiloni is only one of many, along with Dutch social democrat leader Diederik Samsom, to demand changes to the so-called Dublin Regulation on asylum, which requires people seeking refuge in Europe to do so in the first country where they set foot. He stated: "If we don't renegotiate the Dublin rules, first of all the fact that one enters Europe and not a specific country, we'll end up having to renegotiate Schengen and free movement rules, which would be a defeat for Europe's politicians."

It’s of course the other way around. If “Dublin” is aborted, “Schengen” is finished. If Italy would be allowed to provide all migrants free passage to France, there is no way that France would want to continue to be a part of the Schengen area, with its minimal border controls.

It’s also bizarre to see politicians calling for an end to an arrangement which is partially suspended – although not completely. Angela Merkel already admitted that “the Dublin approach is not working anymore, because so many refugees are arriving at our external borders, that we can't leave Italy or Greece alone to deal with this task”. Germany has now suspended Dublin for Syrian refugees, while countries haven’t send back migrants to Greece since 2011 already after a ruling by the European Court of Human Rights in Strasbourg which considered this a violation of human rights. Merkel now doesn’t want to throw Dublin completely out of the window and instead aims to deal with this through spreading refugees, a solution which is also likely to fail, as mentioned before.

Fourth myth: “The solution is to harmonize EU asylum policy”

If you only have a hammer, you tend to see every problem as a nail. The only hammer eurocrats have at their disposal is ever more concentration of power at the EU level, so this is what they have in mind as a response to the refugee and migrant crisis. Plans prepared long ago were quickly taken from the shelf when the crisis erupted and are now being pushed forward.

Proposals made  by the European Commission, the leaders of France and Germany, and Luxembourg, which currently holds the EU’s Presidency, include turning the European Asylum Support Office (EASO) into a fully-fledged European Refugee Agency – which would then be given the power to investigate whether the same standards for granting asylum are applied everywhere in the EU. The idea is that this may discourage refugees from making it to Germany, which last year reduced the time for asylum-seekers to access its labour market to three months.

In practice however, centralizing these kind of regulations, which are often issued with a look on unemployment figures, may lead to a mismatch between supply and demand. Spanish and German authorities are in a better position to decide on this than an EU agency based in Malta. The EU Treaty reserves the competence to fix numbers of immigrants from third countries entirely to member states, but it shouldn’t be a surprise to see the Commission trying to undermine this through the back-door by imposing which standards member states employ to fix the numbers.

Also other proposals come down to forcing countries into an EU straightjacket, while it’s not clear what the benefits are. The EU Commission will draw up a common list of "safe countries of origin”, as if EU member states aren’t already able to make these decisions themselves. If the idea behind this is insufficient trust into fellow Schengen-states, it probably makes more sense to force the “untrustworthy” members out of Schengen, rather than to end Schengen or attempting to micromanage decisions on who should be allowed residence.

Merkel and Hollande have furthermore also called to establish so-called “hotspot” “reception centres” in Italy and Greece to identify migrants arriving from outside the EU and separate those entitled to asylum from illegal ‘economic’ migrants. This could be attractive for certain refugees and may take some of the burden off Northern Europe. However, Italy isn’t keen to agree with this, as it would face the prospect of large refugee camps within its territory, and has made this plan dependent on revising the EU’s Dublin-rules. Even if Italy and Greece would agree to this, this may not be the way to dramatically reduce the number of people obtaining residence status, if that’s the purpose. 62% of boat refugees are from Syria, Iraq and Eritra and 75% of people coming from these countries receive a positive decision, regardless of the fact that they may have been in safety in Turkey already before or not. In other words: most “boat people” are refugees or what national authorities consider to be  refugees at the moment.

Fifth myth: “Welcoming more immigrants is a necessary tool to save Europe’s struggling welfare states”

There is little doubt that migration and opening borders to trade and people benefits the economy. A mere look at any given product or service in today’s globalized economy makes clear that closing borders or raising barriers for people to work together across borders can only stop progress.

Does that mean that allowing a lot of refugees in will bail out Europe’s welfare states? Those are heading to bankruptcy, having to deal with a lot of so-called implicit debt, all kinds of unrealistic promises made to citizens in terms of pension provision, health care and elderly care. Unfortunately, the answer is: only very partially.

A few years ago, the European Commission has estimated that the so-called "sustainability gap" - the future shortage of cash that the average EU member state is facing - would only be around 8% smaller if the EU pursued a policy of keeping the net immigration ratio in the coming decades at the 2008 level of 0.34% of total population. One can surely argue it may help close perhaps 20% or 30% of the gap, but what it shows is that as much as increased migration may be one factor in helping economic growth and tax income, it would be false to claim that this is a panacea to prop up Europe’s welfare model. For that, a combination is needed of working longer, a default on promises made and/or liberalising the economy to boost competitiveness and create economic growth.

So what’s the alternative?

Few would disagree with Irish rock star Bono, who said: “Aid is just a stopgap (…) Commerce [and] entrepreneurial capitalism take more people out of poverty than aid. We need Africa to become an economic powerhouse.” Also, closer cooperation with non-EU countries and perhaps the Australian approach can be part of the solution, as we have argued with Open Europe.

The question is whether we really should wait for such long term solutions to take effect. In the years to come, many will still trying to make it to Europe, and should we blame them? Who would like to live in Syria, these days? It’s equally wrong to plainly dismiss concerns of European voters, who have witnessed on the ground that integrating large groups of people with a different cultural background is not without problems.

I have suggested myself to welcome refugees voluntarily in a “free haven” outside of the EU, where officials from richer countries would safeguard law and order to allow an economy to develop. Multinationals may prefer to host expensive production plants in these zones run by officials of countries with a high level of rule of law, rather than in unstable places like Ethiopia or Pakistan. Similar proposals have been made by US business man Jason Buzi, who wants to give refugees their own “Refugee Nation” and Egyptian businessman Naguib Sawiris, the 10th richest man in Africa, who  has offered to buy an island off Italy or Greece in order to rehouse hundreds of thousands of refugees fleeing Syria and other conflicts.

If you want to help refugees, but you can’t or don’t want to help them within Europe, you need to help them outside of Europe. An agreement with third countries would be necessary for this. Unrealistic? The EU is this year launching a pilot project to develop a number of “temporary” reception centers in Niger, while France and Germany support opening similar centres in Egypt, Turkey or Lebanon. Given that nothing is so permanent as a temporary government programme, the EU may as well send police and justice personnel to these nascent EU refugee camps, similar to what it did in Kosovo.

I don’t want to simply blame politicians for not coming up with more ambitious and effective solutions, given that this isn’t an ordinary crisis which is easy to solve. But precisely because of that, we need solutions which go beyond ordinary management and more of the same. At least Belgian centre-left daily De Morgen supports my proposal, writing that it “is an unexpected, unheard proposal. But awaiting peace and prosperity in the Middle East, this looks like it’s going to be a crisis which can only be dealt with in an unexpected, unheard-of manner.”

Interview with Bloomberg TV on migration

Why the third Greek bailout is likely to fail

Published by MNI Euro Insight

It looks like it’s all being sorted: Eurozone parliaments have grudgingly agreed to a third Greek bailout allowing the eurozone’s bailout fund ESM to lend 86 billion euro over three years to Greece, while early elections should consolidate the more moderate part of Syriza in power. Hereunder I take  a closer look at the assumptions underlying the third bailout, explaining why Greece’s debt situation is unlikely to be “sustainable”.

Given that trust in the European Commission is limited at best, the more “hawkish” Eurozone countries are keen to have the – presumably more “hawkish” - IMF involved, despite the fact that the latter leaves no occasion unused to tell Eurozone countries to take losses on their lending to Greece, something it doesn’t even want to contemplate with regards to its own lending to Greece.

A key condition for the IMF to be involved and lend some more cash to Greece is that Greek debt is “sustainable”. It already agreed with Eurozone countries to basically ignore that the country’s debt is heading to reach 200% to GDP in 2016. Instead it will look at whether the percentage of GDP which Greece devotes to “debt service” exceeds 15%, having agreed that above this point debt service would be unsustainable. Eurogroup Chairman Jeroen Dijsselbloem has stated that even according to the most pessimistic Eurozone predictions for future Greek growth, Greece’s debt service still wouldn’t exceed 12% and would thus be “sustainable”, at least “in the 2020‐2030 period” . The only thing is that according to him “the remaining difference is that the IMF’s worst-case scenario is more pessimistic than ours.” With Open Europe, we expect that the IMF may be convinced by extending maturities – from just over 30 years now to around 50 years – combined with an extended grace period in which Greece doesn’t have to pay back debt yet – up from ten years now to between 20 and 30 years. The interest rate Greece now pays is lower even than the one carried by Portugal, Italy, Ireland and Spain and can hardly be cut much lower.

This tinkering to keep the IMF on board may perhaps make sure that given the assumptions of Eurozone countries, Greek “debt service” costs remain under 15% of Greek GDP also after 2030. Still it’s of course questionable whether it’s possible to predict GDP growth figures so far ahead. Even more questionable, and the fundamental problem here, are the assumptions.

The Eurozone estimates in its “debt sustainability analysis” that in the most pessimistic scenario, Greece’s economy would shrink 0.75% this year, would remain at 0% growth in 2016 and at 1.25% in 2017 and 3% in 2018%. Also the IMF doesn’t seem much more keen to predict negative growth data any more than Soviet bureaucrats were. As recently as April, months after the Syriza-victory had produced a deep stand-off with Greece’s creditors, it predicted that Greece would be the fasted growing country in Europe, although in July it said that the crisis would take “a heavier toll” than previously expected on economic activity in Greece. This all reminds of how its predictions of Greek GDP growth, really since the crisis erupted, consistently turned out to be false.

On the other hand, estimates by private institutions put Greek growth for this year and the next few years at a much more negative level than the eurozone’s “most pessimistic” estimate, with for example Standard & Poor's predicting at the end of July that Greece’s GDP would shrink 3% in 2015. In April, S&P thought Greek GDP would be shrinking 1.5% in 2015 whereas the IMF still predicted growth of 2.5% for Greece this year. If this gap can be of any guidance of the incompetence of public sector institutions, the growth predictions may turn out to be false once again and the annual “debt service” may easily surpass 15% of Greece’s shrunken GDP.

There are more factors indicating Greek growth may not take up: there are lots of reports of Greek companies relocating or considering to do so. Some 60.000 have requested moving their headquarters to Bulgaria, while ship owners may move at least part of their operations to Cyprus due to increased taxation. Not exactly a factor which may boost Greek growth.

Currently, the EU Commission estimates that the Greek “fiscal gap” amounts to 1.25% of GDP, or around 3 billion euro. It looks like the idea is to largely finance this by tax hikes. The “memorandum of understanding” - the instruction list imposed by creditors – requires that the unpopular real estate tax ENFIA, to be paid at the end of October, “should raise €2.65 billion revenues in 2015”. Spending cuts this year look minimal, although defense spending will still be cut by 100 million euro before the 1^st of January. Other tax hikes include an increase of the corporate tax rate from 26 to 29%, increasing sales tax on processed food and restaurants to 23%, abolishing VAT discounts for Greek islands, extra luxury taxes on big cars, boats and swimming pools, a new tax on television advertisements,  “tonnage taxes” which will hit the shipping industry, higher income taxes on – lightly taxed – farmers, higher taxes on insurance premiums and a higher “solidarity tax” for all income brackets. To be fair, the next few years will witness more spending cuts, like 400 million euro in military spending next year, but it’s puzzling how anyone can believe releasing an avalanche of tax hikes on an economy already suffering from capital controls will do anything to boost growth.

Furthermore, one doesn’t need to have paranormal abilities to be able to predict that tax hikes will also lead to a greater informal economy, thereby further shrinking Greece’s official GDP which is supposed to carry the annual debt service cost of which EU institutions think it’s sustainable and won’t exceed 12% even in the most pessimistic scenario.

Then there is the question mark how much Greek privatisation efforts may raise. It’s widely assumed these will fail to bring in the 50 billion euro which creditors are expecting. During the previous “programme”, EU institutions estimated that selling off Greece’s state owned real estate may raise “anything above some €20bn”, but this failed spectacularly. In 2011, Greece’s creditors wanted Greece to raise 50 billion euros as well by selling state assets. Since then, however, Greece only managed to raise 3.2 billion euros: 94 percent below the target. The failure to do so was due to obstruction by powerful and privileged trade unions and because it was hard to value certain assets, like Greece’s islands, while there was little demand for things like sport infrastructure or government airplanes.

Still, privatisation is a great idea. It can work in Greece, as proven by the privatisation of Piraeus Container Terminal’s strong performance since it was taken over by China’s COSCO Pacific. Still one should do it in order to make the economy more competitive and not in order to raise a lot of money.

It’s unfortunate that the Greek government will use some of the proceeds from privatisation to recapitalize some of the country’s zombie banks. Essentially, more than half of the capital of Greek banks are claims on the shaky Greek state, which itself owns stakes in Greek banks. It would be better to first unwind these zombie banks, whereby shareholders and bondholders suffer losses, and then restructure and completely privatise them.

I haven’t mentioned the “structural reforms to enhance competitiveness and growth”, which are laudable, but unlikely to lead to a quick turnaround in growth, given how deep-rooted Greece’s structural challenges are. The fate of the unstable Greek bank system and its debt service burden are hanging like the Damocles over everything else. Angela Merkel had the opportunity to test a different recipe on 12 July, but she chose to kick the can down the road. One last time?

Een nieuw Hongkong kan de migratiecrisis oplossen

Gepubliceerd in De Morgen

English version on OpenBorders.info

04 augustus 2015

Met de bestorming van de Kanaaltunnel bereikt de migratie- en vluchtelingencrisis een zoveelste hoogtepunt. Hectoliters inkt zijn gevloeid over de kwestie, maar suggesties voor een oplossing die in verhouding staat tot het probleem lees je zelden of nooit. Nochtans is die er.

Als we aanvaarden dat er nu eenmaal geen democratische steun bestaat voor het opnemen van 60 miljoen vluchtelingen binnen Europa, is de enige oplossing het verwelkomen van die mensen in veilige zones buiten de EU, op land gehuurd van niet-EU staten - waarbij we er voor zorgen dat dit niet zomaar vluchtelingenkampen worden, maar een investeringszone, waar mensen hun leven kunnen opbouwen en waar multinationals fabrieken kunnen vestigen.

Laten we ze vrijhavens noemen, waar een lokale economie kan ontstaan. Dat is enkel mogelijk als er recht en orde heerst. Daarvoor kan de Europese Unie bijvoorbeeld politie- en justitiepersoneel voorzien, zoals het dat al deed in Kosovo. Er zijn ook historische voorbeelden. Hongkong, bestuurd door Britse ambtenaren, bood in de vorige eeuw reeds een veilige haven aan Chinese vluchtelingen. Zij konden er genieten van westerse rechtsbescherming en een economisch mirakel voltrok zich.

Waar zou zo'n 'vrijhaven' dan wel moeten komen, hoor ik u denken? Per definitie buiten de rijkere landen, denk ik, want er is geen schijn van kans dat die bereid zullen zijn om de miljoenen vluchtelingen in deze wereld op te vangen binnen hun grenzen. Dat er een mogelijkheid is om landen te overtuigen om zo'n zone te creëren, bewijst het feit dat de EU Niger kon overhalen om er een door de EU gerund tijdelijk onderkomen voor vluchtelingen te vestigen.

Nu is de woestijnstaat Niger wellicht niet de beste locatie om een vluchtelingenkamp om te toveren tot een ontwikkelingszone, maar veel arme landen zouden wat graag een mooie huurprijs ontvangen voor het beschikbaar stellen van een stuk - uiteraard onbewoond - land voor een bepaalde periode.

Zoals de Britten met China overeenkwamen om 99 jaar in Hongkong te blijven, inderdaad.

Hoe kan zoiets gefinancierd worden? De kost van het Belgische justitie- en politieapparaat bedraagt 3 miljard euro per jaar, voor 11 miljoen mensen. De jaarlijkse kost van zo'n vrijhaven zou misschien wel drie keer zo hoog zijn, maar nu ook niet zo veel meer.

Zou het echt zo moeilijk zijn om voor een dergelijke belangrijke maatschappelijke uitdaging geld te vinden binnen de gigantische budgetten voor grensbewaking, ontwikkelingshulp, of binnen de huidige EU-begroting? Die loopt op tot 1.000 miljard euro over zeven jaar, waarvan zo maar even 270 miljard euro naar eigenaars van landbouwgrond gaat, onder wie banken en de Britse koningin. Het Europees landbouwprotectionisme en de excessieve subsidies hebben veel schade toegebracht aan de 'derde wereld', dus het aanboren van deze financieringsbron is misschien niet eens zo'n slecht idee.

Idealiter komt er ook publiek-private samenwerking. Multinationals doen grootscheepse investeringen in landen waar een revolutie steeds om de hoek loert. Zouden ze zo weigerachtig staan tegen zo'n 'vrijhavens', bestuurd door landen met een degelijke reputatie op vlak van rechtsbescherming?

Wat als het toch misloopt en de 'vrijhaven' eerder een nieuw Liberia dan een nieuw Hongkong wordt? Een terechte vrees, maar de keuze om naar daar te migreren zal uiteraard vrijwillig zijn. Het kan toch niet zo moeilijk zijn om voor landen die ooit de hele wereld controleerden in een voor-technologisch tijdperk een omgeving te creëren die beter is dan landen zoals Syrië, Noord-Korea, Eritrea?

Is dit wel een realistische oplossing? Toch wel, op zijn minst in vergelijking met de falende alternatieven. Ngo's zouden moeten toegeven dat pleiten voor volledige open grenzen onrealistisch is en eigenlijk neerkomt op wegkijken van het probleem. Politici zouden moeten toegeven dat zelfs de meest forse grensbewaking niet in staat is om het hoofd te bieden aan mensensmokkelaars, indien de migratiedruk zo hoog is. Vrijhavens bieden voor vluchtelingen een mogelijkheid om veilig en legaal te gaan naar een plaats waar ze hun leven kunnen opbouwen.

Het sluit andere oplossingen - grensbewaking, ontwikkelingshulp, bieden van asiel en toelaten van economische migratie - ook niet uit. De EU plant nu reeds een soort van vluchtelingenonderkomen buiten Europa, in Niger. Het heeft ervaring met het uitsturen van politie- en justitiepersoneel, in Kosovo. Als men vluchtelingen wil helpen, maar men wil of kan ze niet helpen binnen Europa, zijn er niet veel andere oplossingen dan ze te helpen buiten Europa.

Pieter Cleppe vertegenwoordigt de onafhankelijke denktank Open Europe in Brussel

The great Greek fudge

Published by Vocal International and Zero Hedge

A third Greek bailout involving loans from the European Stability Mechanism (ESM), the eurozone’s bailout scheme, is now being negotiated. The start was quite rocky, with haggling over the precise location in Athens where negotiations need to take place and Greek officials once again withholding information to creditors. Therefore, few still believe that it will be possible to conclude a deal in time for Greece to repay 3.2 billion euro to the ECB on 20 August. Several national Parliaments in the Eurozone would need to approve a final deal, which would necessitate calling their members back from recess around two   weeks before the 20^th, so it’s weird that French EU Commissioner Pierre Moscovici still seems so confident that the deadline can be met.

If indeed there is no deal, Greece is likely to request a second so-called “bridge loan” to allow it to pay the ECB, firmly within the Eurozone tradition of the creditor providing the debtor cash in order to pay back the creditor. France, which is most eager to keep Greece inside the Eurozone, is afraid that bilateral bridge loans from Eurozone countries wouldn’t be approved by the more critical member states, as this would risk France having to foot this bill on its own, perhaps with Italy. Not exactly a rosy prospect for socialist French President Hollande, who’s already struggling to contain the far right anti-euro formation Front National.

The only European fund practically available to provide a bridge loan is the European Financial Stabilisation Mechanism (EFSM), a fund created in May 2010, which has been raising 60 billion euro on the markets, with the EU’s €1 trillion Budget as collateral. The EFSM belongs not just to Eurozone member states, but to all EU member states. How on earth did the UK, which isn’t part of the Eurozone, agree to bail it out in 2010, one may wonder? The reason is that the decision to create the EFSM was taking precisely at the time of the power vacuum in the UK. Labour had just lost the election and the Conservatives were still busy negotiating a coalition with the Lib Dems. Outgoing Labour Chancellor Alistair Darling claimed to have “consulted” likely new Chancellor George Osborne, but it remains muddy who precisely gave the expensive OK. In order to correct this, PM Cameron secured a declaration from other EU leaders in December 2010 that the fund wasn’t going to be used any longer, until it was used after all, in July 2015, to provide Greece with a first bridge loan. Then not only the UK, but also the Czech Republic and Poland protested heavily, only backing down when they secured special guarantees against possible losses and a commitment that it would be illegal in the future to provide loans to Eurozone countries with the EFSM without also providing such guarantees to non-euro states.

EU Finance Ministers are currently busy implementing the legal change, through a “written procedure”, which should be finalized before the middle of August. The Council declared in July that an “agreement” on this legal change was needed “in any case before” Greece can request a second bridge loan. Another “written procedure” is needed for that, but it’s unlikely that Finance Ministers will manage to decide this in smoke-filled rooms. With Polish elections coming up on 25 October, local opposition parties may once again rail against Polish PM Ewa Kopacz, who promised voters they wouldn’t be exposed to this. Also the UK may use this as an opportunity to extract concessions related to its own agenda for EU reform. Perhaps the French government’s sudden openness to this agenda and its welcome stance that “we need a fair treatment of the 'out' countries" may have been linked to the British approval for a first bridge loan.

As always in the Eurozone, the safest bet is on another fudge, at least when it comes to the bridge loan.

More questionable is how the IMF’s statement that it “cannot reach staff-level agreement [to participate to a third Greek bailout] at this stage” will play out, given that Greece no longer meets two of the four IMF criteria for a bailout: ability/willingness to implement reform and debt sustainability. It will only decide whether to take part in the bailout after Greece has “agreed on a comprehensive set of reforms” and after the Eurozone has “agreed on debt relief”, meaning it may even only join next year or not at all, of course. This is a problem, given that a number of Eurozone states, especially Germany and the Netherlands, have explicitly linked their willingness for a third Greek bailout to participation by the IMF. Former EU Commissioner for Monetary Affairs Olli Rehn has suggested that many countries demand IMF involvement in bailouts because they don't trust the Commission.

It’s not entirely clear what will be sufficient for the IMF: its President, Christine Lagarde, has discussed a write-down on the value of the country’s debt but ruled out a straight “haircut”, while mentioning an extension of debt maturities, an extension of grace periods and a maximum reduction of interest rates. The IMF carries the legacy of its former Director Dominique Strauss-Kahn, who managed to overcome opposition within the fund against taking part in the first Greek bailout in 2010. The IMF only issues loans to countries when there is prospect for debt sustainability, which clearly wasn’t the case for Greece in 2010, but the interests of supposedly “systemic” banks were considered to be more important. Now the IMF, which has never taken straight losses on loans it has issued, may be experiencing this in case of Grexit.

As opposed to the IMF, which has completely ruled out the idea of taking losses on its lending to Greece, and contrary to the picture painted by some, Germany has made some noices suggesting it may be open to cutting its losses in Greece. German Chancellor Merkel has not only been open to extending debt maturities and lowering interest rates, but her Finance Minister Wolfgang Schäuble has said that “if you think the best way for Greece" is debt relief, then "the best way forward" is to leave the euro, adding that “a real debt haircut isn’t compatible with the membership of the currency union”. So Germany is willing to accept debt relief, if there is Grexit.

Some have questioned Schäuble’s claim that debt relief wouldn’t be legally banned within the eurozone, as for example Financial Times columnist Wolfgang Munchau, who recently wrote: “In its landmark Pringle ruling — relating to an Irish case in 2012 — the European Court of Justice (ECJ) said bailouts are fine, even under Article 125, as long as the purpose of the bailout is to render the fiscal position of the recipient country sustainable in the long run.”

This sounds a bit like a stretch. The ESM is very much conceived as a “European IMF”, hence the ECJ’s use of the term “sustainable”, reminiscent of the IMF’s condition to provide cash. Just like the IMF, the ESM has been set up to issue “loans”, not to provide “transfers”. Obviously, a loan with an artificially low interest rate partly counts as a “transfer”, but even for the rather politicized judges of the European Court of Justice there is an end to stretching the meaning of words.

Therefore, apart from the case where the ECJ would completely remove the meaning of the words of its previous rulings and the ESM Treaty, EU law doesn’t allow the “loans” made to Greece to just be forgiven, as much as proponents of a Eurozone transfer union like Mr. Munchau may regret this.

After PM Tsipras threatened with an internal referendum in his own left-wing populist Syriza party, it looks like he has secured the necessary domestic support for a third Greek bailout.

Obstacles remain, but much of the protest in “creditor countries” seem to have been overcome. In Finland, where the coalition was at risk at some point, Foreign Minister Timo Soini has said that it “would make no sense” for his Eurosceptic Finns party to leave the Finnish coalition over this. In the Netherlands, the governing VVD party, which is skeptical to the Greek deal, has provided tacit consent for negotiations to start. In Germany, despite all the noice, Merkel enjoys a comfortable majority to get on with the third range of transfers.

The third bailout is likely not to be sufficient to cover all Greek funding needs in the next few years, also given that expecting 50 billion euro from privatizing Greek state assets looks a little rosy. This is a problem which can be solved near the end of the bailout period, once Greece has made it through the difficult year 2015. In 2016 and 2017, the country needs to make debt repayments “only” amounting to around 6 billion euro each year.

The IMF may in the end just back down and join in, given how it already bent its rules twice to agree to Greek bailouts. It would have been expected to provide between 10% and a third of the funding of the new bailout which may amount to 86 billion euro (and possibly more), so if the IMF wouldn’t back down, Germany and France would see their bill for the third bailout rise with another 1.7 billion and 1.3 billion euro respectively. A lot will depend on how the IMF will calculate “debt sustainaibility”. Speaking in the Dutch Parliament, Eurogroup chief Jeroen Dijsselbloem said on 16 July that the Eurozone already “agreed with the IMF to look at "debt service", not merely at the debt to GDP levels”. In other words: because Greece’s interest burden as a percentage of GDP is even lower than the one carried by Portugal, Italy, Ireland and Spain, one can ignore the fact that its debt to GDP is at the horrendous level of 180% now. This of course overlooks the difficulty to boost that GDP, given the tax hikes and the capital controls which will be hard to remove as a result of the talk about “Grexit”. Still, a fudge looks on the cards.

It isn’t a good idea to let the bill of Eurozone taxpayers grow even bigger, to burden an economy already crippled by debt with even more debt and to intervene deeply into domestic Greek policy choices. Opting for Grexit may have been the wisest choice for everyone. The opportunity was there, given that many Greeks had already taken their savings out of banks anyway. Also, many of the reasons to think Greece still may leave the Eurozone, like the difficulty to unwind capital controls, remain in place. We have come close, but Grexit seems to have been avoided for now. But it’s unlikely to have been referred “ad kalendas Graecas”- "until pigs can fly".

Pieter Cleppe represents independent think tank Open Europe in Brussels

www.openeurope.org.uk