Political wrangling instead of vaccines
Turkey: Multiple policy challenges from all directions
Bulgaria's Covid-19 vaccination fiasco: excessive risks, mediocre results
The unbearably slow vaccination process in Croatia
It will happen when it happens - The vaccination entanglement in North Macedonia
Has external competitiveness been fixed in Greece?
Take your seats
The rows of empty seats at the European Parliament in Strasbourg on Tuesday as Alexis Tsipras spoke about Greece and European politics were in stark contrast to the tension-packed encounter he had with MEPs in 2015, before agreeing to a third bailout.
The final Greek programme is over but Tsipras will continue to suffer its effects. The SYRIZA leader may never be able to shake off the accusation that Greece could have avoided another round of deep austerity measures after the two previous programmes and that his government’s kamikaze tactics cost the country tens of billions.
Against these grave errors, his claim that he (and not the three previous prime ministers who led Greece while it was under a programme) guided Greeks out of their memorandum nightmare and back to economic growth rings hollow.
It became evident during the summer that Tsipras was too optimistic in pinning his hopes of a political recovery on the bailout exit and the stirring of the economy. To compound matters, Greek authorities proved inept in tackling the deadly wildfire in Mati, on the outskirts of Athens, at the end of July (less than a month before the third MoU ended) and the SYRIZA-Independent Greeks (ANEL) coalition produced an even more woeful performance in dealing with the fallout from the disaster, which has been responsible for 99 deaths so far.
This ended any government plans to celebrate leaving the programme after more than eight years of gruelling fiscal (mostly) and structural (less so) adjustment. Instead, there was a low-key, stage-managed visit to Ithaca and brief statement by Tsipras. The big bang he wanted to finish the bailout on became more of a whimper.
Now, with the next general elections 12 months away at the most, Tsipras and SYRIZA must find a new launchpad to propel them towards their contest with centre-right New Democracy.
At the Thessaloniki International Fair (DETH) on Saturday, Tsipras declared that Greece is poised to enter a new era after putting the worst of the crisis behind it. According to the prime minister, SYRIZA’s role in shaping post-programme Greece will be to ensure it does not return to corruption and profligacy and that the benefits of the unfolding recovery will be shared equally. Tsipras suggests that this is how SYRIZA will place its leftist seal on the recovery.
To further polish his tarnished leftist credentials, Tsipras pledged that the minimum wage (reduced to 586 euros in 2012) will begin to rise from next year and that collective bargaining would be restored after significant deregulation in the Greek labour market since 2010.
The SYRIZA leader then moved on to the fiscal side and, in summary, announced a rent subsidy scheme for up to 300,000 families, the reduction of the annual property tax (ENFIA) by up to 30 percent over two years, a decrease in social security contributions for the self-employed from 20 percent to 13.3 percent (in line with salaried workers), a cap on supplementary pension contributions for doctors, engineers and lawyers, the decrease of corporate tax from 29 to 25 percent over four years, social security subsidies for firms who hire employees aged under 25 and the reduction of the top rate of VAT from 24 to 22 percent in 2021, with the lower rate dropping 1 percentage point from 13 percent to 12.
He also pledged that 1 billion euros in backpay would be handed over by the end of the year to members of the armed forces and emergency services, as well as other civil servants, who won appeals against cuts made in 2012.
When broken down, the package heralded by Tsipras was far from the handout bonanza that some of his critics had warned about in the build-up to DETH. The prime minister made a point of saying that his government would continue to abide by the fiscal targets it has agreed, even if it also wants greater policy autonomy now that the third programme has been completed.
On the other hand, the announcements were not of the type to get investors excited. The reductions to the prohibitive corporate tax rate will be small and staggered, while the Greece’s overall tax policy continues to lack direction.
Ill at ease
Also, when questioned about economic and financial issues in an otherwise soporific press conference on Sunday, Tsipras did not give the impression that he had any greater grasp of the bigger picture than in 2015, despite his insistence that he has become savvier.
He dismissed the recent spike in Greek bond yields (the 10-year was above 4.5 percent), arguing that the government does not have to worry about these fluctuations because it has built up a cash buffer of close to 30 billion euros that will cover its borrowing needs for the next couple of years, if necessary. This disregards the way in which these higher yields feed their way through the financial system and are often passed on to Greek companies and banks when they borrow from the markets. Also, it ignores the fact that the cash buffer is there for emergencies, not to be used from Day 1. If Greece starts tapping it straight away, it could have serious implications for investor confidence in the country.
During Saturday’s speech, Tsipras also said that one of the government's "political goals" is to bring the Henry Dunant hospital in Athens back into the national health system with the help of the Onassis Foundation, after it "was almost stolen" from taxpayers. The timing and nature of this comment prompted some surprise as the current owner, Piraeus Bank, is in the process of gathering bids for its asset. Therefore, Tsipras's intervention could be interpreted as an attempt to influence the process in favour of the Onassis Foundation (which looks set to donate the hospital to the Greek state) at the expense of the other four bidders. On the same day, US Trade Secretary Wilbur Ross, who was also in Thessaloniki, had warned that American investors want predictability and stability from Greece.
The SYRIZA leader also gave an unusual explanation to why he is confident that calling off next year’s pre-legislated pension cuts (worth 1 percent of GDP) will not cause fiscal complications over the long run. He pointed out that the government is on course to meet its primary surplus targets without the elimination of the so-called “personal difference” (the extra retirement pay received by pensioners who stopped working before the coalition’s reform was implemented in 2016). But the prime minister also argued that most of the retirees who enjoy the larger pensions are over 70, implying that nature would soon take its course and solve the problem in the most decisive way possible.
The reason Tsipras appear to dread the pension cuts more than the Grim Reaper is that they are due to be implemented from January, a few months before the next national elections are due. Having been battered by opponents over the government’s pension reform, tax hikes and constrained spending, the last thing the SYRIZA leader wants is to go to the polls next year having lopped another 1.8 billion euros off the expenditure on retired workers.
Instead, he wants to score a fiscal and symbolic victory by convincing the lenders that the measure passed through Parliament in 2017 as part of the effort to conclude the third bailout’s second review is no longer necessary. In purely fiscal terms, Tsipras is on strong ground when he argues that no further cuts are needed. On the structural side, though, his argument is weaker because pension spending as a percentage of Greece’s, albeit contracted, GDP remains high.
The issue is due to be settled in the next few weeks as Greece has to submit its draft 2019 budget to Parliament on October 1 and to the European Commission on October 15. If the government is not able to reach a compromise with the lenders, it would be a serious, perhaps decisive, blow to SYRIZA ahead of the general elections, which many expect to be held in May, at the same time as the European Parliament and local votes.
Tsipras has shown remarkable powers of political survival since being elected in January 2015. This was emphasised by an opinion poll carried out by Marc for Proto Thema weekly ahead of DETH. It indicated that New Democracy maintains the comfortable lead it’s had over SYRIZA for many months. The conservatives are on 29.9 percent versus 19 percent for the leftists, according to the survey. However, Marc’s previous poll in June had New Democracy on 30.6 percent and SYRIZA on 16.2, suggesting that the margin between the two narrowed by 3.5 points over the summer, even though the government was strongly criticised for the Mati disaster.
To be clear, Tsipras’s goal at the next elections is not to win but to stay in the game, whether that means fending off any challenge from within SYRIZA to his leadership so that he can mount a comeback from the opposition benches in Parliament, or denying New Democracy a clear/comfortable majority so that the leftists are in a more powerful position when the next elections are held under the new proportional representation system, which will deny the winning party a 50-seat bonus.
Regardless of what happens to the pension cuts, the last few weeks have provided a fresh test for Tsipras and made it clear that he needs to improve his performance to have a chance of hanging on. The danger is that instead of choosing to up his game, he will lower the tone by relying on greater polarisation, digging up scandals and mudslinging to cut his opponents down to size. New Democracy has shown that it is not afraid of responding in kind and the prospect of a poisonous election battle looms on the horizon. That will certainly draw the crowds, but it will make for nauseous viewing.
*You can follow Nick on Twitter: @NickMalkoutzis