How Sa­ma­ras backed him­self (and Greece) into a cor­ner over bailout exit

Financial Mirror (Cyprus) - - FRONT PAGE -

The line com­ing out of Prime Min­is­ter An­to­nis Sa­ma­ras’s of­fice at the end of May was that New Democ­racy did not lose the Euro­pean Par­lia­ment elec­tions de­spite re­ceiv­ing almost 4 per­cent­age points less than SYRIZA. To­gether with PA­SOK, the rul­ing party had a big­ger share of the vote than the op­po­si­tion. The ar­gu­ment em­a­nat­ing from the gov­ern­ment camp was that if the left­ists couldn’t score a de­ci­sive vic­tory at the tail end of the Greek de­pres­sion, they would never achieve one.

It is strange, then, that all the key de­ci­sions taken by Sa­ma­ras and his min­is­ters since May have been those of a gov­ern­ment on the run. In less than five months, the coali­tion has backed it­self and the coun­try into a cor­ner as it searched desperately for a way to avoid a po­lit­i­cal de­feat that it was in de­nial about in May.

The un­rav­el­ling be­gan on June 9 with the cab­i­net reshuf­fle. Sa­ma­ras’s decision to pack the gov­ern­ment with bel­liger­ent pop­ulists was an ad­mis­sion that he was man­ning the bar­ri­cades for a no-holds-barred po­lit­i­cal bat­tle rather than paving the way for a re­form-driven turn­around. This was the mo­ment that Sa­ma­ras and his coali­tion part­ner, PA­SOK’s Evan­ge­los Venizelos, be­gan to lose the trust of those mod­er­ate vot­ers in Greece who had tol­er­ated (rather than sup­ported) them in the belief they were the least bad op­tion for the coun­try. The gov­ern­ment’s opin­ion poll rat­ings have headed only one way since this move.

The un­veil­ing of the uni­fied prop­erty tax in July proved a fi­asco. The new tax was full of er­rors and prompted up­roar among back­benchers. The newly ap­pointed Fi­nance Min­is­ter Gikas Har­dou­velis quickly sought to dis­tance him­self from the tax, ar­gu­ing that it had been de­signed be­fore he took up the post. In the end, the gov­ern­ment had to ro­tate its MPs to en­sure that amend­ments to the bill would pass through Par­lia­ment.

Amid fan­fare, the gov­ern­ment an­nounced on July 28 that it had ful­filled the wishes of most Greeks and driven the troika out. Well, sort of. Vot­ers were in­formed that the next meet­ing with the troika, in early Septem­ber, would take place in Paris, not Athens. This, the do­mes­tic au­di­ence was told, was proof that Sa­ma­ras and Venizelos were go­ing to over­see the con­clu­sion of the adjustment pro­gramme and the end of the troika’s in­va­sive role in Greek pol­i­cy­mak­ing. Re­al­ity, though, proved quite dif­fer­ent.

The Paris meet­ing was lit­tle more than a pre-in­spec­tion brief­ing dur­ing which it be­came bla­tantly ob­vi­ous that the gov­ern­ment still had nu­mer­ous ac­tions to ful­fil. Almost two months on, the re­view has still not been con­cluded and Sa­ma­ras and Venizelos are still meet­ing ev­ery week to de­cide what mea­sures to im­ple­ment.

See­ing the two year old prom­ise of debt re­lief slip­ping away, Sa­ma­ras felt he needed some­thing else tan­gi­ble to present to MPs in the hope of avert­ing the gov­ern­ment’s col­lapse in Fe­bru­ary, when Par­lia­ment must elect a new pres­i­dent with a su­per-majority of 180 out of 300 votes. This led to the prime min­is­ter piv­ot­ing to­wards a new strat­egy: an early bailout exit. So, in mid-Septem­ber the gov­ern­ment floated the idea of Greece not tak­ing on 12 bln euros in IMF loans due in 2015 and 2016, cast­ing off the shack­les of troika mon­i­tor­ing and ex­or­cis­ing the demons of a pos­si­ble third bailout. The tac­tic was based on the idea that Greece could bor­row from the mar­kets at cheaper rates than the IMF.

Sa­ma­ras first un­veiled this strat­egy at his meet­ing with Ger­man Chan­cel­lor An­gela Merkel on Septem­ber 23. It quickly be­came ev­i­dent that the uni­verse was not will­ing to con­spire with the gov­ern­ment’s new cun­ning plan. Merkel went to her de­fault mode of be­ing non-com­mit­tal, in­sist­ing that the troika re­view had to com­plete its re­view be­fore any­thing else could be agreed. There was a sim­i­larly cool re­sponse from IMF man­ag­ing di­rec­tor Chris­tine La­garde when a Greek del­e­ga­tion, in­clud­ing Har­dou­velis, met her in Wash­ing­ton on Oc­to­ber 12. The Eurogroup also sug­gested on Oc­to­ber 13 that Greece was get­ting ahead of it­self. Just days after Sa­ma­ras un­veiled his vi­sion for round­ing off the year with a clean bailout exit, it be­came clear that any de­par­ture would in­volve a pre­cau­tion­ary credit line.

Mar­kets soon dis­played their scep­ti­cism of such a plan. Greece’s bond yields, which had started to rise in the wake of Sa­ma­ras’s an­nounce­ment in Berlin, shot up last week to around 9% as po­lit­i­cal risk also be­came a fac­tor. Once again, events forced the gov­ern­ment into a re­think and plans for a pre­cau­tion­ary credit line, cob­bled to­gether from the leftovers (up to 11.5 bln euros) in the HFSF bank re­cap­i­tal­i­sa­tion fund, were aired. Mean­while, it be­came ob­vi­ous that claims that the bailout exit would also mean an end to mon­i­tor­ing were also un­founded. While the IMF may peel away from the troika, it will re­main as a tech­ni­cal ad­viser. Also, the eu­ro­zone will main­tain some form of over­sight. Even ECB pres­i­dent Mario Draghi has made it clear Greek banks will not qual­ify for the pur­chase of As­set Backed Se­cu­ri­ties (ABS) and cov­ered bonds if Greece is not un­der a pro­gramme.

Each straw the gov­ern­ment has tried to clutch onto to save it­self has been a short one. Its last hope is to con­jure up a plan that in­volves giv­ing back money it has al­ready bor­rowed from the Euro­pean Sta­bil­ity Mech­a­nism at a rate of around 2% and with no in­ter­est pay­ments due for ten years so it can go to the mar­kets to bor­row the same amount at a rate much higher and with no grace pe­riod. At the same time, Greece will still be bound by the terms of an agree­ment with the eu­ro­zone – a mem­o­ran­dum by another name.

It is dif­fi­cult to see how this is a plan that leaves Greece bet­ter off. Then again, though, per­haps it is just a plan to save this gov­ern­ment. At the mo­ment it looks highly un­likely that it will even man­age that.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.