Structural considerations for a prosperous Greece
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Waiting for the hurricane
Over the last few months, Greece has been like a town on the East Coast of the USA during the hurricane season. Greeks have been checking the news every day to see if the storm will hit, causing widespread destruction, or whether it will glance by their homes, leaving behind damage that can be repaired. They have listened to the people governing them and at times felt that they have shown determination and a clear strategy in how to confront the hurricane but other times that the officials have been confused and overawed by the power of the force heading their way.
And so we come to the moment of truth: Will Alexis Tsipras and his government ride out the storm? Or will they, and the country, be swept up by the hurricane?
The information coming out of Brussels over the last few days suggests the proposal lenders will place before the Greek prime minister will make him extremely uncomfortable. Particularly in terms of taxes, pension cuts and labour market liberalisation, the institutions appear to be making very challenging demands of Tsipras. At the same time, there are doubts about whether the creditors will offer any clear path to debt relief.
If the Greek leader has little to counterbalance the new round of austerity and painful reforms against there can be no guarantee that he will be able to secure the support of his party for an agreement. While a lot of attention has fallen on SYRIZA’s left wing and its apparent refusal to accept anything that is not in line with the pledges the party made during the election, the truth is that these radicals do not want to bring down Greece’s first leftist-led government. The left in Greece has been battling (literally during the Civil War and the military junta) to be in power and will not give up its position in government lightly.
However, Tsipras’s party will find it very difficult to justify accepting a deal that is simply a continuation of the programme that the previous government, led by conservative Antonis Samaras, could not or would not implement. SYRIZA was voted to power for a number of reasons. Of course, some voters were taken in by Tsipras’s pledges of increases in retirement pay for low-income pensioners and a rise in the minimum wage even though these promises looked impossible to implement. But many Greeks also voted for SYRIZA because they felt they had run out of other options; that after five years of recession and being under a programme designed by the eurozone and the International Monetary Fund their country was going nowhere.
SYRIZA’s challenge was to renew people’s hope in the future and present a genuinely new path. This strategy had two aspects to it: One was to convince Greece’s partners to agree a less onerous mix of economic and fiscal policies, while the other was to implement reforms that would enhance the sense of fairness within Greece. The latter meant making progress in the collection of taxes, speeding up the justice system, making the public administration more efficient and cleaning up Greek politics. The government has made little progress in these areas over the last few months. In fact, if one looks at the unmeritocratic way public officials have been appointed over the last few months, SYRIZA gives the impression of wanting to do things exactly the same way as its predecessors. Its performance on the domestic front in terms of addressing the structural problems holding Greece back has been disappointing so far.
The only excuse that Tsipras and his ministers can offer is that their full attention since January 25 has been on the negotiations with lenders. However, this underlines how mistaken the government’s strategy has been. It has invested (and burned) all its political capital in negotiating over 7.2 billion euros rather than focussing on the third package, which should be larger and include some form of debt reduction. Tsipras, however, did not believe in the strategy of losing a battle to win the war and has sought confrontation with creditors from his first day in office.
Voters’ trust in this approach has waned dramatically over the last few months. According to a University of Macedonia poll, 60.5 percent of Greeks supported the government’s negotiating strategy in February. By May this figure had dropped to 35 percent. Nevertheless, SYRIZA remains far ahead of other parties in terms of popularity, which underlines how much Greeks have exhausted all their political options. The election of the current SYRIZA-Independent Greeks coalition means that six parties have governed Greece over the last six years.
SYRIZA has governed exactly like it acted in opposition, trying to feed off ideological clashes and attempting to prove that it is the keeper of a single truth that explains all of Greece’s problems. This approach has not worked on the European or international stage. It has alienated potential friends and bred mistrust. SYRIZA’s forcefulness has been met with stubbornness on the other side, where lenders have been reluctant to admit their own mistakes or to consider giving ground in the face of the obvious exasperation of the Greek people.
So, Tsipras has placed himself in an impossible situation: He either accepts a deal with is based on policies that he (and many others) believe could do further harm to the Greek economy but would at least put a temporary end to the uncertainty that has also taken Greece from weak growth to a new recession over the last quarters or he (and his party) reject it and take this uncertainty, and potentially destructive turmoil, to a much higher level.
The ideas of returning to the drachma or even issuing a parallel currency have been floated but before we even get to the point of debating the merit of these options, one has to consider the organisation and clear thinking needed to go down this route. It requires levels of competence from the public administration, togetherness of the political system and patience in society that simply do not exist in Greece at the moment.
So, the town braces for the hurricane, hoping that at the last minute it will be blown off course and the worst will be averted.
The failure to act to "implement reforms that would enhance the sense of fairness within Greece" will likely be viewed as a major error when SYRIZA's failure is critiqued for it has contributed to the exasperation of creditors and the weakening of the government's own position.
Interesting to see a balanced discussion of Syriza's quite unimpressive record so far. Reforms coming ever?