Wednesday, 21 January 2015

The new Greek government could face a financial siege

This article was published by Al jazeera International. 

At election rallies across Greece, the main opposition party, the Coalition of the Radical Left, or Syriza, promises to lead a European revolution against austerity.

Millions of pairs of eyes have turned to Greece, to see whether after five years of patience, of painful and unwavering efforts, Greece can lift its head. We will prove that when people are determined they can defeat even the greatest enemy,” declared Alexis Tsipras, Syriza’s leader, at a recent rally in the northern city of Komotini.

Tsipras’ supporters are a mix of traditional leftists and the newly dispossessed. The former see the prospect of Greece’s first ever left wing government as a historic moment. The Greek communist party, KKE, lost a civil war 65 years ago in pursuit of this goal. Syriza, which was formed in 1989 as an attempt to unite Greece’s fragmented communist groups, now represents the left’s best hope of achieving it. 

The majority of Syriza’s supporters, however, are not dyed-in-the-wool ideologues. They are people like Uzinel, a city bus driver who quit his job after his 1,200 euro monthly salary fell by half. “It used to cost me 300 euros a month just to drive in to work, so I was working for 280 euros,” he said as he braved the January cold, waiting for Tsipras to arrive at the rally. “Tsipras says he will restore minimum wage to 750 euros. That is decent.” Uzinel now supports his family by farming sugarcane and tomatoes.

Many Greeks are willing to admit that the country’s $42bn [36bn euros] deficit needed to be tamed; but five years of government spending cuts that finally balanced the budget last year also helped deprive Greece of a quarter of its economy, and produced unemployment of over 25 percent. In a controversial report published in May 2013, the International Monetary Fund admitted that it had greatly underestimated the recessionary effect of the public spending cuts it ordered the Greeks to make.  

Now that the government is finally raising more in taxes than it is spending, its new challenge is to meet scheduled debt repayments. That task is absorbing more than its hard-won surplus, forcing it to keep borrowing and keeping it in what Syriza’s chief economist, Yiannis Milios, calls an “austerity trap”.

Syriza’s main election promise is to renegotiate the terms under which Greece would repay $280bn [240bn euros] lent to it by fellow Eurozone members and the International Monetary Fund to ease the period of adjustment. It wants its creditors to write off up to half of that debt and allow Greece to delay repayment of the rest until it enjoys healthy growth rates.

“We have always said that a debt servicing cannot deprive the country of the valuable resources which are needed for social cohesion and growth,” Milios tells Al Jazeera. “And there are now many voices in Europe who agree with us… Deflation, recession, high unemployment are not only Greek problems. They are problems of all the European south and they have started also being problems in the northern countries.”

Leftists, who formed the backbone of the Greek resistance during Nazi occupation, are fond of reminding Germany that it was effectively relieved of the damages claims of the countries it had fought and occupied, amounting to hundreds of billions of dollars. “I think the so-called German economic wonder wouldn’t have taken place if this decision wasn’t made in the London conference of 1953,” says Milios.

Rebellion against the debt trap resounds with Greek voters, who now owe an unprecedented $200bn (173bn euros) to banks, social security and the taxman – a sum equal to the country’s output.

Not everyone is convinced that Syriza can pull off a successful negotiation with creditors. Anger at the recession is mixed with fear that the country’s fragile recovery may become derailed.

“I don’t trust them. Are we just going to wake up the day after the election and find that all our problems have been solved? I don’t think so,” says Popi Giouzelidou, a clothes shop owner on Komotini’s main square. “Where are they going to find the money? And why didn’t they work with the conservatives as a national unity government? I think they just want power.”

Strictly speaking, Syriza is not winning this election as much as the incumbent coalition of conservatives and socialists is losing it. Its current approval rating of around 30 percent is only marginally greater than what voters gave it in the last general election, two and a half years ago. The ruling New Democracy and Pasok parties, however, have together lost roughly 10 percent of the vote. Under Greece’s election law, that will deprive them of a 50-seat bonus in parliament awarded to the top party.

Syriza has already gone against the majority in triggering this election. By refusing to back the government’s candidate for president, which requires bipartisan support, it invoked a constitutional dissolution of parliament last December. Public opinion, as expressed in recent polls, favoured continuity and political consensus.

Before the 2012 elections Syriza had again gone against majority opinion by openly threatening to unilaterally stop debt repayments, forcing it to leave the Eurozone with potentially ruinous results for the currency. More than two thirds of Greeks have consistently polled as favouring the euro over a return to the drachma.

While Syriza is now careful to back a negotiated rescheduling of debt, its strategy still hinges on leveraging Greece’s nuisance value. Its argument now is that denying the Greeks satisfaction would be politically incorrect. “You’re worried that if a Syriza government comes along… the almighty Germans or whoever else will chop off our head, stick it on a pike and carry it around saying, ‘here’s what happens to people who vote for Syriza’,” Yiannis Dragasakis, a senior Syriza policymaker, recently told a panel of fellow-economists. “Does anyone believe that such a Europe has any kind of future?”

Syriza faces a difficult negotiation. Creditors have frozen $8.8bn (7.6bn euros) in loan disbursements until Greece completes its negotiation, and the current government has exhausted a $17.4bn (15bn euro) ceiling of bond sales under its oversight programme. A Syriza government’s only source of revenue, therefore, will be taxes; but public tax revenues collapsed in the last three months of 2014, cutting a projected $7bn (6.1bn euro) primary surplus by two thirds.

Eurozone finance ministers are preparing to extend the negotiation deadline by six months, to September. Such a prolonged negotiation would amount to a siege. Senior banking sources tell Al Jazeera that Greece only has cash reserves to service the debt, pay public servants and shore up the pension system through February.

“The cash reserves are definitely until the end of March and in addition there are many options that the Greek state can use to have another 2-3 months without any real problem,” insists Syriza MP Yiorgos Stathakis, an economics professor widely thought to be in line for the crucial finance portfolio. “At any rate as soon as we form the government I think political stability will improve the performance of tax receipts.”

Even if a Syriza government manages to draw out talks to the deadline, it is highly unlikely to be able to make good on $12bn (11bn euros) in social spending it has promised. Stathakis, who is the most moderate of Syriza’s economic policymakers, says the party would implement at least a $2bn (1.8bn euro) portion of the programme that would provide food, electricity and healthcare for the poorest Greeks.

“The Greek programme has failed completely,” he says. “We have to go back to the table, find a new solution with our partners. That’s the only way.”

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