A tall order keeping hope and Greece afloat
They came to power promising change and riding a wave of expectation, but the country’s new leaders face pressure to live up to their promises
Greece’s new prime minister came to power two weeks ago riding a wave of hope for change. But his pledge to rewrite the bailout agreement that has kept the country afloat for nearly five years doesn’t depend on him alone. Agreement by the other European countries which contributed to the €240 billion (8.8 trillion baht) bailout is essential. So far, it hasn’t been forthcoming.
The big question is how many, if any, of his promises Alexis Tsipras can keep without risking a potentially disastrous Greek exit from Europe’s multinational currency, the euro.
A crucial indication of which direction the government intends to go is due to come today, when Mr Tsipras presents his government’s policy plan in parliament. A three-day debate culminates in a confidence vote late on Tuesday.
“If the policy statements are as hard as the pre-election ones ... you understand that we’re heading to a big clash, and I think the markets will move accordingly,” said Nick Kafkas, head of research and analysis at Merit Securities.
Mr Tsipras and his finance minister, Yanis Varoufakis, have criss-crossed Europe over the past week to drum up support for their plan to reach a new agreement with European countries. Their argument is that after nearly five years, it’s obvious the current system of austerity-linked reforms is not working and the level of debt is so high it can never be repaid.
After all of the painful spending cuts, structural reforms and tax hikes, there has been some improvement and Greece posted its first primary surplus — budget balance excluding interest payments — last year. But despite billions in cheap loans and the world’s largest debt write-down in 2012, Greece’s economy has shrunk by a quarter and its debt stands at more than 170% of gross domestic product.
Mr Tsipras and Mr Varoufakis received a warm reception on some stops, but not in lead lender and bailout enforcer Germany. And Greece doesn’t have much time. Its current bailout agreement expires at the end of this month and the European Central Bank announced this week it can no longer accept junk-rated Greek bonds as collateral for loans to the country’s banks after Wednesday.
Although the banks can still access funds from an Emergency Liquidity Fund, that system can’t go on for long.
“Greece runs out of money in March or April, and its negotiating position with its international partners will be severely weakened when this happens,” said Megan Greene, chief economist at Munulife Asset Management.
Before the Jan 25 elections, Mr Tsipras called for most of Greece’s debt to be written off. He also promised to restore the minimum monthly wage to €751, re-hire sacked public service workers, re-introduce collective wage agreements, provide subsidised electricity and food to the poorest and roll back a series of bailout commitments, including privatisations.
Greece’s creditors were horrified. The pledges, they argue, would cost way more than Greece can afford and re-create some of the very conditions that led the country into its fiscal mess in the first place — an over-rigid, uncompetitive work environment and bloated public sector.
They also say relaxing Greece’s conditions would be unfair to other EU countries that received bailouts: Ireland, Portugal and Cyprus.
“The conditions with Greece were generous, beyond all measure,” German Finance Minister Wolfgang Schaeuble told Germany’s ARD television on Thursday after a rather tense meeting in Berlin with Mr Varoufakis.
“What would other countries say, for whom the conditions were tighter and stronger?”
In such a climate, it will be hard for the government to fulfil all its promises.
“If someone asks me whether they can do everything they had announced before the elections, I’d say categorically ‘no,’ ” said Mr Kafkas of Merit Securities.
“It’s unfeasible. Also, there are two dimensions: one is whether they can do them all, and one is in what timeframe. They can do some, over a stretch of time. And that’s an issue of negotiation.”
With the noose tightening around Greece’s neck, the government has already softened some of the confrontational rhetoric of its first week in power, when tough talk of rolling back bailout pledges sent the Athens stock market plummeting.
Calls for debt forgiveness have been qualified with a proposal to exchange debt to bailout creditors with growth-linked bonds and interest-only “perpetual” bonds — which would have a similar effect without it being an outright debt cancellation. During a press conference after his meeting with Mr Schauble, Mr Varoufakis also said that some reforms in the current programme were correct.
“It’s not that the current reform programme is to be discarded altogether.
“I would say that 60-70% of what in that list consists of moves and measures that we should want to take ourselves,” Mr Varoufakis said, but added that the structure of the bailout was wrong.
The government now says it needs time to negotiate a mutually acceptable new agreement, and wants a “bridging programme” to ensure it has enough cash to function until then. Its main creditors, however, are adamant Greece must stick to its pledges.
An emergency meeting of the eurozone’s 19 finance ministers has been called for Wednesday to discuss Greece, a day before an EU summit.
Ms Greene, of Manulife Asset Management, estimated the government would “deliver a victory” on debt relief by persuading creditors to extend maturities and reduce interest payments. But that is only half the battle.
“Ultimately Greece desperately needs more money in the short term, and will have to agree to reforms to get it,” Ms Greene said, adding that there was room for agreement on issues such as institutional reforms.
“But the Greek government will not have much of a leg to stand on once it has run out of money, and will have to back down on many of its election pledges to make it happen.”