Greeks last Sunday went to the polling station for the third time this year. On all three occasions, Alexis Tsipras and his Syriza party won overwhelmingly. In January, he crushed the former government after the outgoing Prime Minister Antonis Samaras had badly misjudged his fortune in a political manoeuvre around the nomination of the next Greek president.
In July – to the surprise and fury of his European partners – Tsipras called a referendum and advocated the rejection of the EU conditions for a new rescue programme for Greece. He won overwhelmingly but u-turned a week later and accepted even harsher terms. Despite this volte-face, last week Tsipras won his gamble of getting rid of rebels in his party while remaining in power. He can now continue with a working majority in Parliament and overwhelming support in Parliament for the reform programme agreed with the EU. With all the precautions you need to take when talking about Greek politics, there now is a reasonable chance for a prolonged period of political stability.
Some believe that Tsipras will try to wiggle out of the tough conditions imposed by the EU. This is unlikely. The EU’s aid will be released in tranches and carefully staged, with conditions to be fulfilled for each step. Mr. Tsipras in July looked into the abyss of #GREXIT – and did not like what he saw. He knows perfectly well that a fourth rescue operation is out of the question. He has to make the third work if he wants to go down in history as the saviour of modern Greece.
Unless he delivers by November at the latest on the remaining 20 legislative measures promised in the plan, ECB support for the bank sector in Greece will end, followed by another bank run and #GREXIT around the corner. Saving the banking sector in Greece is in turn a condition for removing the capital controls that today seriously hamper economic development in Greece.
Is Tsipras in a straitjacket with no room for manoeuvre? No, there is plenty of scope for delivering on his promises to fight corruption and crony corporatism in the Greek economy. This would be warmly welcomed by the EU and could contribute substantially to economic recovery and budgetary improvements.
Extend and pretend
The question of Greek debt will return to the table in November-December when progress in the implementation of the third programme will be examined for the first time. It seems to be a foregone conclusion that there will be no haircut on debt. If everything goes well there will be a further postponement of interest payments and repayments. “Extend” and “pretend” (that the loans will one day be paid back) is the name of the game, which – at least in the short term – will add oxygen to the economy. At the same time, the EU is speeding up structural fund spending in Greece on more favourable terms than in other member states as well as providing privileged access to the new EU Investment facility.
The big question, of course, is whether there is a chance that this can lift the economy out of recession, and give the long-suffering Greek people some light at the end of the tunnel. Signs appeared at the beginning of the year that a turnaround was about to happen but they quickly disappeared in the political turmoil brought by the latest crisis. Now they are reappearing. The significant structural reforms which after all have been implemented over the last five years and the drop in salaries are now starting to bear fruit in the export sector, slowly putting Greece on the same recovery path as Portugal and Spain.
Much has been made of the damage which the extra “austerity” imposed would inflict on the economy. It has escaped the attention of many that the extra belt-tightening required in the new reform programme is much less severe than what was demanded earlier.
It is much too soon to cry victory. Non-economic factors could play a big part. A period of political stability gives Tsipras a historic chance to lead Greece through the necessary changes. The extraordinary trust that the population has shown him in spite of U-turns and political manoeuvres makes him the man that could install a “yes we can” spirit in his country.
It would, of course, help if the overall European economy were on the upturn. Until now, the many factors that normally favour a rise in growth and employment – like low interest rates and oil prices as well as a falling dollar – have not produced spectacular results. Several American Nobel-prize winning economists in the Spring called for a drastic change in the EU-imposed reforms in Greece starting with an expansive fiscal policy. They seem not to have understood the exceptional character of the Greek situation and we were right not to listen. However, this does not mean that they do not have a point when talking about the European economy in general. Why is nobody any longer talking about an overall political/economic package comprising greater expansion – in particular more investments – in Northern Europe combined with an acceleration of economic reforms in the South?