Tsipras’ chal­lenge is a gen­er­a­tion clash as well

Financial Mirror (Cyprus) - - FRONT PAGE -

For the first time, a mem­ber of the Euro coun­tries re­ceiv­ing fi­nan­cial aid from the Euro group has openly chal­lenged the con­di­tions it had agreed to. Alexis Tsipras, the new prime min­is­ter of Greece, has re­fused even talk to the Troika tech­nocrats im­ple­ment­ing the Greek bail out. His chal­lenge brings into ques­tion not only the Greek bail out pro­gramme but even the power and meth­ods of the Euro group, its gov­ern­ing body.

For the Euro group, Mr. Tsipras’ ini­tial de­mands ap­pear out­ra­geous. Not only does he chal­lenge the fi­nan­cial con­di­tions Greece agreed to, he has also taken ac­tion to stop and re­verse prom­ises made by the pre­vi­ous Greek gov­ern­ment to re­struc­ture the Greek econ­omy. Tsipras an­nounced be­fore and af­ter his elec­tion his in­tent to stop pri­vati­sa­tion, in­crease pen­sions, in­crease the min­i­mum wage and raise the num­ber of work­ers in public sec­tor. Th­ese mea­sures would halt and re­verse the re­struc­tur­ing mea­sures which the Euro group be­lieves are nec­es­sary to make coun­tries re­ceiv­ing its fi­nan­cial as­sis­tance com­pet­i­tive once again. Oth­er­wise, what is to pre­vent them from re­quir­ing more fi­nan­cial as­sis­tance in the fu­ture?

Of course, the money owed by Greece to its cred­i­tors is also im­por­tant. The Euro group politi­cians who have agreed to the Greek loans are ul­ti­mately accountable to their elec­torate. Can the lead­ers of France, Ger­many, etc., re­ally re­turn to their con­stituen­cies and say that the money (their tax money) that they loaned to Greece will not be re­paid in full?

From the Greek point of view, end­less aus­ter­ity was not why they had joined the group. Aus­ter­ity has proved a fail­ure. No coun­try can be ex­pected to en­dure fi­nan­cial mis­ery and un­em­ploy­ment lev­els of 26% year af­ter year with the so lit­tle ev­i­dence of im­prove­ment.

The stage is set for a mo­men­tous head to head en­counter. We have here a clash not only of is­sues but also gen­er­a­tions, cul­tures and styles. One can’t help sym­pa­this­ing with the charis­matic young leader of Syriza. Youth con­fronts the grumpy priests of aus­ter­ity which com­prise the Eu­rogroup. Even Syriza’s newly ap­pointed min­is­ters give the ap­pear­ance of stu­dents who have over­stayed their time at uni­ver­sity.

The Euro group will likely of­fer some limited ac­com­mo­da­tion re­gard­ing the pay­ment sched­ule for their loans to Greece, ex­tend­ing and soft­en­ing the terms of re­pay­ment. But there is likely to be lit­tle or no flex­i­bil­ity on the essence of the “re­struc­tur­ing” part of the pro­gramme. Al­low­ing Tsipras’ party to aban­don th­ese mea­sures would strike at the very phi­los­o­phy un­der­ly­ing such change. It is not just a ques­tion of com­pet­i­tive­ness but of de­vel­op­ing a Eu­ro­zone com­prised of coun­tries that are “Euro­pean” in out­look and eco­nomic devel­op­ment.

In their fu­ture ne­go­ti­a­tions, the Euro group will be care­ful not to play the role of the big bully pres­sur­ing lit­tle Greece. They don’t need to. In a mat­ter of months, Greece will need ad­di­tional funds to pay the pen­sion­ers, public ser­vants and oth­ers who voted for Tsipras. Greece is ef­fec­tively shut out of in­ter­na­tional fi­nan­cial mar­kets. Money is flow­ing out of Greek banks. Eleven bil­lion Eu­ros of de­posits is es­ti­mated by some to have left Greek banks just in Jan­uary seek­ing safe havens.

The Euro­pean Cen­tral Bank, as the sole re­main­ing source of funds, con­trols the fi­nan­cial life­line of the Greek gov­ern­ment. It has only to grad­u­ally and gen­tly to re­duce pay­ments to im­ple­ment a fi­nan­cial squeeze that the new Greek gov­ern­ment would find it hard to re­sist. If Tsipras has a plan for find­ing the nec­es­sary funds and avoid­ing such a fi­nan­cial squeeze it is not ev­i­dent.

Our own politi­cians have not been slow to latch on to the Tsipras bandwagon. Even be­fore the Greek elec­tions, there have been long stand­ing de­mands by a num­ber of Cypriot po­lit­i­cal par­ties to re­ject the troika and its de­mands. As with Tsipras, th­ese par­ties have been much less spe­cific on what would hap­pen if, in re­sponse, the Euro­pean Cen­tral Bank cuts off the fi­nan­cial flow of funds it sup­plies to Cyprus.

Where would Cyprus find the money to fi­nance gov­ern­ment spend­ing for the public sec­tor work­ers, mil­i­tary, hos­pi­tals, etc.? Few (as in nil) an­swers have been forth­com­ing. Th­ese politi­cians will be ea­gerly watch­ing to see if Tsipras has ar­rived at some magic for­mula that ev­ery­one else has over­looked. Some in­sight as to what his strat­egy might be will be pro­vided by de­vel­op­ments in Greece over the next few months. Th­ese will be watched care­fully. The stakes are high. A Grexit would be a dis­as­ter for both sides. We are in for an in­ter­est­ing time.

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