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