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A snapshot of the Greek economy
Going for Growth: What next for Greece's economy and banks?
SYRIZA's date with history
SYRIZA leader Alexis Tsipras is following a well-trodden route by trying to force early elections over the presidential ballot. Several others before him have tried to exploit the loophole in the Greek constitution which means that snap polls have to be held if 180 MPs cannot be found to back a presidential candidate. The most recent opposition leader to follow this tactic was PASOK’s George Papandreou in 2009.
After winning the European Parliament elections (36.6 percent for PASOK vs 32.3 percent for New Democracy), Papandreou made it clear that his party would vote against any presidential candidate put forward by the conservative government in early 2010. This resistance precipitated the decision of then Prime Minister Kostas Karamanlis to call snap elections in October 2009. A huge swing in votes brought Papandreou to power but at the same time handed him and his government the responsibility of dealing with the biggest economic crisis the country had suffered since the Second World War.
By also choosing to use the presidential vote as leverage in a push for snap elections, Tsipras runs a similar risk of finding himself trying to disentangle a complex set of parameters that could land Greece in further trouble.
It’s not as if Tsipras is oblivious to history. Last week he accused Prime Minister Antonis Samaras of trying to encourage “apostasy” among opposition MPs in order to elect a president and avoid early elections. The term refers to the decision in 1965 of several MPs to betray Georgios Papandrou’s Centre Union and join governments that were loyal to King Constantine.
The comparison is perhaps an exaggeration but it underlines that the SYRIZA leader is aware of the lessons that history can teach. This makes it all the more baffling that SYRIZA gives the impression it is sleepwalking into a storm it is unprepared to weather.
The opposition party’s logic behind its central position is clear: Greece’s bailout programme has largely failed to address the country’s underlying problems (e.g. tax evasion, justice), while making many of those on the surface (e.g. wages, pensions) worse. To overcome this, SYRIZA argues, there needs to be a radical departure from the previous philosophy of cuts and liberalisation in favour of debt reduction and stimulus.
The outline of this argument is in keeping with what many international commentators and economists, who have no connection to SYRIZA and do not even position themselves on the left of the political spectrum, have been advocating for some time.
However, while there is a considerable consensus on the need for a change in policy, the process by which this can be achieved is far less clear. Commentators and economists can satisfy themselves with sketching out the broad framework as they drive public dialogue and the exchange of ideas. But those who want to govern the country, to directly shape the lives of millions cannot settle just for debate and theories. This is where SYRIZA’s troubles begin.
To achieve the turnaround it describes, the leftist party proposes: A haircut of public debt, quantative easing by the European Central Bank, a rollover of Greek debt by the ECB and a revision of the loan agreement with the troika that would scrap primary surplus targets in favour of a balanced budget. The overarching weakness in this strategy is that each of these points requires substantial ground to be conceded by the eurozone. This, of course, is not a reason in itself to give up the fight but it is to logical to expect that in negotiations where these will be the demands on one side, there are bound to be great expectations on the other. This fact has to be weighed up against Tsipras’s insistence at a conference in Athens this week that a SYRIZA government would stop abiding by the terms of any agreement with Greece’s lenders from its first day in office. Clearly, this would threaten to undermine the negotiations even before they begin.
It is also clear that if any agreement on the points that SYRIZA raises is possible, it will not happen overnight. The current government, for instance, has been involved in talks with the troika for almost four months in a bid to agree on a disputed fiscal gap of 2.5 billion euros. How long would it take, for instance, to reach a consensus on the writing down of 25 billion or more?
Assuming there are early elections in late January or early February, SYRIZA comes to power and some kind of negotiating process begins, Tsipras’s party will not be able to put everything on hold until there is an outcome from the talks, especially as the extension to the current bailout expires at the end of February. In the meantime, the country will have to be governed, taxes will have to be collected and wages and pensions paid. There are also other commitments that have to be met that will also limit SYRIZA’s room for manoeuvre. Chief among these are the Greek government bonds that mature in the summer, just weeks after SYRIZA might potentially come to power. Greece has to pay out nearly 3.5 billion euros for bonds held by the ECB and eurozone central banks on July 20 and another 3.2 billion to the same holders on August 20.
In the almost certain scenario that Frankfurt sticks to its position that rolling over these bonds is monetary financing of a member state and therefore against the ECB’s rules, a SYRIZA government would have to meet these maturities.
Considering that Greek bond yields are currently residing above 8 percent, raising this money from international markets to fund this seems an outlandish plan. Without a programme or a precautionary credit line, Greece will simply not be able to pay these bonds. If the fledgling SYRIZA government has set aside whatever agreement with the eurozone is in place at the time or if the New Democracy–PASOK coalition agrees a six-month extension to the current bailout, Greece will be left blowing in the wind come summer 2015.
There is no doubt that if SYRIZA comes to power early next year, it will have been dealt an even worse hand thanks to the amateurish handling of the situation by the current government, whose half-baked scheme for an early bailout exit has fallen to pieces. This, though, has provided Greece with another vital lesson, which is that to negotiate a country’s future, on which millions of livelihoods depend, requires the utmost preparation and planning. Recent history has taught us that Greek governments have in most cases been woefully unprepared for consultations of this magnitude. SYRIZA’s challenge is not to repeat the pattern.
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An earlier version of this article was published in last week's electronic newsletter, which subscribers can receive via e-mail or mobile app. The apps can be downloaded for free at the App Store and Google Play.
"But say Alexis Tsipras, Syriza’s leader, does emerge victorious, what then? There is hardly any chance of the rest of the Eurozone agreeing another debt restructuring, and no chance at all if Syriza is serious about the rest of its agenda, including reversing wage and pension cuts, structural reforms and so on.
Mr Tsipras, nevertheless, seems to think he can get his way simply by threatening to blow up the euro anew. It worked before, so it can work again, he figures. He’s wrong. If the rest of the Eurozone thinks it is sufficiently prepared to withstand a Greek default without significant mishap, then his bluff will be called. Mr Tsipras must then do his worst or be exposed as a man of straw.
In the first instance after repudiating debts, the ECB would refuse to renew liquidity support to the Greek banking system, worth around €40bn as things stand, or a sum equivalent to 20pc of the Greek GDP. This would soon cause another collapse in output, and necessitate swift withdrawal from the euro so as to allow the Greek central bank to crank up the printing press to fill the funding gap and pay the government’s bills.
The new currency would plummet, inflation would climb, and pretty soon Greeks would be experiencing something close to the full scale economic wipe-out described in Adam Fergusson’s terrifying book about the hyper-inflation of Weimar Germany – “When Money Dies”.
Mr Tsipras thinks he can default and stay in the euro, that he can, to put it another way, both repudiate his debts and maintain the value of his assets. Unfortunately, it doesn’t work that way. The two things move together.
None of this is to argue that Mr Tsipras is wrong to seek a further debt restructuring. There is no chance whatsoever of Greece, or for that matter several other periphery Eurozone economies, repaying their debts. For Greece, this would be the same with or without Mr Tsipras’s unhinged political agenda. Only the creditor nations of the north refuse to acknow
From the announcements of SYRIZA it looks obvious that Greece governed by SYRIZA will not honor it's financial obligations, aka it will promptly declare bankruptcy.
This most probably would have the consequence of Grexit (return of Greece to Drachma). This imho would have been the best of all (ugly) ways when the crisis started.
If today it is still better than negotiations with the Troika is a very difficult question. Evil tongues whisper that this is the unvoiced (covert) intention of the Troika.
After that fact, new and more reasonable agreements can be concluded with a new next Greek government....