Greece and the Euro Area—Impasse or End Game?
Another week has passed in the tug of war between Greece and the euro area, and a wide gap remains between the two sides over what Athens must do to renew the financial lifeline that has kept it solvent since 2010. Still, it is too early to dismiss the likelihood of a deal in coming weeks.
The Greek government of Prime Minister Alexis Tsipras recently sent a letter [PDF] to the president of the Eurogroup with its “first list” of economic reform proposals, including the potential hiring of thousands of part-time “civilian tax inspectors” to help crack down on tax evasion. Meanwhile, the euro area unambiguously ruled out any new disbursement of cash to Greece until there is an overall agreement for conclusion of the program review and initial genuine program implementation by Greece.
Adding to the pressure for a deal, cash is running out in Athens. The government may be unable to pay basic government salaries and pensions and dues to the International Monetary Fund (IMF)—and much less its many expensive election promises—in the weeks ahead. Unless the ruling Syriza coalition wishes to preside over another economic collapse in Greece, it will likely accelerate its shift toward accommodating the euro area’s demands. Greece’s rulers have no other choice. Private financial markets remain closed to Greece, and the IMF is surely not going to fill the breach.
Tsipras’s difficulties are mainly within his own Syriza grouping, not the Greek parliament, where opposition leaders—centrist parties and even New Democracy—favor accommodation with creditors. Whether Tsipras can keep his party together while relying on opposition votes is another question to which no one knows the answer. But Tsipras’s political process victories should help him sell the result to Greek voters, if not to his allies. The Troika is no more. It has been renamed the “Brussels Group,” highlighting the face-saving transfer of negotiations to EU headquarters and eliminating the spectacle of dark-suited Troika envoys descending on Athens. Only lower ranking staff will now skulk into the Greek capital. The reviled “program” has been replaced by an “agreement,” and the Greek government has a new right to propose economic reforms, giving the negotiation the feel of a dialogue of equal partners. Of course a government about to run out of money cannot be an equal partner. The vast majority of the existing program will probably survive, and any alternatives proposed by Athens are certain to be subjected to intense scrutiny.
As for how Syriza will react if there are only minor or cosmetic changes in Greece’s program, the outlook seems problematical. Forty percent of its central committee recently supported a nonbinding resolution opposing the government’s post-election choices, including the agreement with the euro area. On the other hand, hardly any Syriza members of parliament (including from the hard-line Left Platform) voted against the deal at the parliamentary group’s recent caucus. Tsipras can probably rally his party to win a vote of confidence at least initially. In France, President Francois Hollande faces a similar situation, in which he is consistently unable—without having to resort to parliamentary votes of confidence—to rally the left-wing of his own Socialist coalition in favor of his economic and (tepid) reform policies. Ironically, Prime Minister Matteo Renzi of Italy—who recently won an 80 percent majority in his own Democratic Party (PD) party for his new labor market reforms—is further ahead in persuading his allies to accept 21st century economic realities.
Over the longer haul, however, Syriza’s left-wing will probably support its leadership’s concessions. Were the left to defect, Tsipras might bring another centrist party into his coalition or call another snap election, though an election would be risky. Going back to the polls would expose the Greek economy to more uncertainty, lower tax revenues, and the possibility that Tsipras would have to propose new reforms to convince the euro area to release more short-term funds.
Given the status quo forecast for Greece, can Syriza continue to claim the mantle of a radical left-wing party? The answer is no. Syriza is being forced to the center by economic reality, which raises a separate danger—of Syriza pursuing atavistic dreams of rekindling ancient nationalist demons in Europe, such as its intention to seek war reparations from Germany—a stance that would raise eyebrows in fellow EU member Poland, for example. Such talk makes it easier to understand why Tsipras could form a coalition with the far-right Independent Greeks party. These flirtations with a constant nationalist sense of historical victimhood rather than its economic policies are what set Syriza apart from the rest of Europe.