Wednesday, 28 January 2015

Greece’s leftist cabinet prepares to break some eggs

This article was published by Al Jazeera International

Greece’s first fully left-wing government went to work on Wednesday to make good on its core election promise: to restore Greek sovereignty and growth.

To do this, prime minister Alexis Tsipras wants to redirect the country’s sliver of surplus wealth from overseas creditors to the poor and battered middle class.

His government’s first major task will be to restructure Greece’s debt, which now stands at $365 billion - 175 percent of GDP, because meeting debt instalments is eating up more wealth than Greece can currently produce.

Tsipras and his newly appointed finance minister, Athens University economist Yanis Varoufakis, are to begin what promises to be a lengthy negotiation with creditors on Friday. That is when Dutch finance minister and current president of the single currency bloc, Jeroen Djisselbloem, is expected in Athens.

We will support them in their quest for economic recovery of Greece. We are glad that their ambition is to realise this within the Eurozone and that is exactly our ambition too,” Djisselbloem said on Monday, after the Radical Left Coalition, or Syriza, emerged victorious with 36.3 percent of the popular vote.

But this is not a resumption of business as usual. Syriza has promised to overturn the austerity policies previous Greek governments accepted. The new cabinet consists of an unprecedented lineup of leftist academics, most of whom were once members or supporters of the Greek communist party.

Varoufakis has been one of the most outspoken critics of Greece’s austerity policies. Asked by Al Jazeera in late 2013 whether Greece could continue to service its debt, he replied, “under no circumstances”, predicting that Greece would “remain in the dark cloud of permanent insolvency and perennial debt bondage.”

Greece restructured its debt once already, shaving off an estimated $117bn [103bn euros] in 2012. This restructuring will be harder, because the debt has been purchased by other EU sovereigns; any debt forgiveness will have to go through national parliaments.

Though Syriza now demands a writeoff of up to half its debt, even Varoufakis did not then think that Greece’s creditors would ever agree to this.

The troika of Greece’s official lenders has two alternatives,” he said. “One is to write down Greece’s debt substantially, e.g. by 100 to 120 billion euros, and then let Athens return to the markets in order to re-finance its remaining debt. Alas, this would mean that Mrs Merkel would have to announce to her Parliament, against all her earlier pronouncements, that the German taxpayer will take a large hit. This she will simply not do.”

The more realistic concession, Varoufakis, felt, would be telling European taxpayers  “that Greece’s debt will not be written down but that the repayments will be stretched into the future and the interest rate will be pushed close to zero. This seems to be the scenario that the powers-that-be are opting for. Once more, they are tending toward a suboptimal (non)-solution that will simply prolong Greece’s debt bondage at a cost for Europe’s taxpayers that is unnecessarily high.”

Yet the powers that be – the so-called troika of the European Central Bank, the European Commission and the International Monetary Fund - simply did not make this offer to the previous government, perhaps in anticipation of a Syriza victory. A senior party source tells Al Jazeera that Syriza has been in unofficial talks with the German government “for months”.

Even if creditors do offer an extension of debt repayment now, there is no guarantee that the Syriza would accept it. Varoufakis indicated in 2013 that this would only work “if Europe signs a binding agreement with the Greek government which casts in stone an automated and unconditional repayment schedule for the next thirty years, making each repayment dependent only on Greece’s GDP growth rate and not subject to troika visits.”

In other words, Greece would only meet agreed debt payments if it were experiencing significant rates of economic growth. This, felt Varoufakis, would be the only formula that “would allow Greece a chance to escape debt bondage while Mrs Merkel will also have the opportunity of pretending to the German electorate that Greece was not allowed to write down its debts.”

Varoufakis will not be the only negotiator with creditors. Tsipras has said that he will form a national negotiating team. This will reportedly include Haris Theoharis, who achieved notoriety as Greece’s first general secretary for public revenue for the efficiency with which he prosecuted tax collection. His dismissal ahead of a June reshuffle caused the ire of creditors. Theoharis is now an MP with Potami, a centrist, reformist party.

But the driving force behind policy will be unmistakeably leftist. One key role will go to deputy prime minister Yannis Dragasakis, one of the hawks on the left who want a parliamentary committee of inquiry into the financial conduct of past administrations. “We consider how we got here to be an open issue – how we got to the deficits and debt before 2009,” Dragasakis recently told a panel of fellow economists.

Also key to the economy will be Yiorgos Stathakis, a University of Crete economist, who assumes the burgeoning development portfolio. Four ministries have been telescoped into one, giving him oversight over much of the productive economy - trade, exports, infrastructure, merchant shipping and tourism. Stathakis will, over the next two years, disburse  over $12bn in EU-funded infrastructure projects, and billions more in tourism spending. That spending will account for much of the 2.9 percent growth Greece is forecast to achieve this year.

Interviewed shortly before Sunday’s election, Stathakis felt that the government would not shy from executing at least $2bn in social spending, as part of a promise to ultimately redistribute $12bn.

We will definitely do it because the welfare programme we have announced has a fiscal cost of 1.8bn euros,” he said. “It is within the range of the budget and we will succeed in fulfilling our promises.” That 1.8bn swallows all of Greece’s primary surplus in 2014, and has raised concerns in official circles about the prudence of Syriza’s fiscal relaxation.

On election night, Syriza set up a pavilion near parliament where supporters gathered to hear Tsipras’ acceptance speech. While the votes were being counted, the pavilion speakers blared the start of a Leonard Cohen song:

“They sentenced me to 20 years of boredom,
For trying to change the system from within,
I’m coming now, I’m coming to reward them,
First we take Manhattan, then we take Berlin.”

Inexplicably, the song was stopped in mid-verse – perhaps to avoid giving offence. Yet Syriza has openly campaigned as the vanguard of an anti-austerity revolution that will displace German austerity policies in the Eurozone. It remains to be seen whether Tsipras, the DJ of that policy, will be forced to change track.

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