The last tango
In a spectacular about-face, Alexis Tsipras, the leftist prime minister who once warned that the markets “will have to dance to the tune” of his government, is now dancing to their tune instead. It’s a masterful choreography. I would not be surprised if Tsipras were actually monitoring bond prices realtime through a Bloomberg terminal installed at his office – it would not be the first time. Greece, meanwhile, is for the first time being ruled by a left-led government implementing – again, for the first time – a tough neoliberal economic program. The key principle is labor flexibility, which is resulting in lower unemployment. Wages have come down to the point where unqualified workers are attracted to Cyprus where the basic salary is now higher than Greece. Meanwhile, the retail market is experiencing a tectonic shift as small- and medium-sized businesses give way to chains and big multinational firms. Pensions have been severely slashed and pension funds are being integrated. Unions are also caving in, and the country’s main regional airports have come under private control. In other words, the government that so proudly styled itself as the “first left-wing administration” is pushing through a purely neoliberal program (save the devastating taxes). Paranoid and paradoxical as it may be, public reaction has been close to zero. There are very few strikes and protests are limited. The government is trying to keep up its ideological pretense by enforcing the bad side of socialism and making a norm of the lowest common denominator in every possible area, including education and the public sector. Little does it know that is a major putoff to investors. Meanwhile, a big danger lurks. Tsipras could soon find himself on the bed of Procrustes, being pulled in different directions by the markets and his SYRIZA party. Greece indeed faces the prospect of finally exiting the bailout program and the straightjacket of outside economic supervision. This is something that the country really needs, also for reasons of self-respect and national self-confidence. But as we head towards the next election the pressure for political favors and handouts will grow. Tsipras has shown himself to be extremely vulnerable here. Should he give in, he can expect the austerity hawks to respond with yet another bailout, especially in the event of a revenue shortfall. The government narrative would come undone and the sacrifices of the Greek people would go to waste. At the moment Tsipras appears to be enjoying his dance with the markets. The program allows the markets to dance with a fiscally prodigal and institutionally weak partner without risk. But once supervision is over the markets will put Tsipras under scrutiny and their supervision will be much stricter than the IMF’s. Tsipras’s carefree tango with the markets this summer will probably be his last.