Gov’t mulls impact of Italy, Spain on clean exit

There are fears in Athens that political upheaval in Italy and Spain might cast a shadow over the upbeat narrative of leftist Prime Minister Alexis Tsipras regarding a “clean” bailout exit for Greece in August.

Although the official Greek position is that Athens will not request a precautionary credit line from its international creditors, and the country will make use of a 20-billion-euro cash buffer, there is speculation about a change of stance.

Theoretically, Greece also has access to an additional 40 billion euros in loans from its third bailout, though its disbursement would be linked to further reforms.

Berlin’s stance is expected to be pivotal to the Greek government’s decisions. Greek officials consider it unlikely that German Chancellor Angela Merkel will support the prospect of a credit line as the earmarking of additional loans from the European Stability Fund would require approval in the Bundestag. However, in view of the upheaval in Spain and Italy, Berlin might choose to opt for safety. Some sources indicate that Berlin is seriously considering the option of a credit line for Greece and has informed Athens of this. According to this scenario, support would be extended to Greece for a year with a possibility of two six-month extensions.

The head of Parliament’s Budget Office, Frangiskos Koutentakis, indicated that the decision was down to Greece’s partners. “The important thing is what the creditors say,” he said. “We don’t think that [a precautionary credit line] is a very probable scenario, but we cannot rule out anything, generally, as regards the economy.”

In a debate with party leaders in Parliament last month, referring to the credit line that former conservative prime minister Antonis Samaras and ex-finance minister Evangelos Venizelos had agreed, Tsipras had remarked “your ceiling is our floor.” The comment was seen as a reference to the cash buffer that the current government has raised which the previous administration had lacked.

According to some analysts, even if Tsipras does not achieve the “clean exit” and full return to the markets that he has touted, his positive narrative might emerge intact if he manages to secure some level of debt relief and offer handouts to offset a new round of pension cuts due next January.