Greece election fallout: EU leaders reluctant to give Athens a pass

Euro zone officials indicate the best Tsipras can angle for is an easing of loan conditions

Lightning strikes over buildings at central Syntagma square during heavy rainfall in Athens  on Monday. Photograph: Marko Djurica/Reuters

Lightning strikes over buildings at central Syntagma square during heavy rainfall in Athens on Monday. Photograph: Marko Djurica/Reuters

 

Alexis Tsipras struck a quick deal yesterday for his hard-left Syriza movement to share power with the smaller right-wing Independent Greeks party following his party’s decisive win on Sunday. Tsipras then took the premier’s oath, and set up talks with Europe on his country’s precarious financial situation.

Speed is essential. The current bargain between Athens and its sponsors in the EU and the IMF expires at the end of February. The European Central Bank has signalled that a new arrangement – or extension of the current one – is a precondition to continuing its support for the ever-frail Greek banks. Such support reached €56 billion in December and has risen since. Greek banks would be doomed without it.

A new deal will also be required for Greece to receive any benefit from the €1.14 trillion bond-buying programme unveiled last week by ECB chief Mario Draghi.

Strident demands

Thus Syriza’s anti-austerity rhetoric will soon face the reality of negotiation in the here and now with countries and institutions who say the Greek party’s most strident demands are in the realm of the impossible. Still, a research paper this month from Brussels-based think tank Bruegel found that Greece already meets conditions euro zone finance ministers laid down in 2012 to “consider further measures and assistance” if necessary.

 

But conflict seems inevitable. Implicit German threats that Greece could be ejected from the euro were never really denied in Berlin, where Syriza’s call to repudiate debts and increase expenditure is seen as irresponsible folly. Note too that Independent Greeks leader Panos Kammenos shares Tsipras’ s hardline stance on the bailout.

By crossing the ideological spectrum to talk with Kammenos, Tsipras spurned talks with centrist pro-European party To Potami. The binding thrust of the new administration is clear, even if its two leaders agree on little else. This lessens scope for compromise by the new premier.

Yet if all of this heralds still more tumult in the euro zone – and potential disaster – the reaction of financial markets is muted. This has its root in the expectation that some kind of a compromise can be hammered out in the end.

“Our baseline expectation is that Greece will be able to extend the current review beyond the end of February and find an agreement with its partners before major bond maturities loom in July and August,” said analysts at UBS.

This will not be easy, however. Tsipras toned down some of his remarks on the hustings, saying German taxpayers had nothing to fear and that he was not bent on confrontation with partners. But his basic demand is still to write off some of the Greek national debt, something that would impose big losses on the very same euro zone countries that have lent billions to Athens since 2010.

Aversion to that kind of talk is not confined to Germany. “It’s unfathomable to make Finnish taxpayers pay for Greek stimulus policies,” said Finnish prime minister Alexander Stubb. “We won’t forgive loans.” Although Stubb opened the door to talks about an extension to the maturities on Greek loans, he insisted economic reforms would still be required.

 

Debt conference

It goes without saying that European leaders who have engaged in swingeing fiscal retrenchment – and paid the political price – are reluctant to grant an easy pass to Tsipras.

 

The Greek leader wants an international debt conference modelled on the London conference that cut Germany’s post-war debt in the early 1950s, but there is little real enthusiasm for the notion.

Indeed, the sour response in Germany to the ECB’s new stimulus plan suggests the political and economic establishment there is not in the mood for any fundamental shift in its stance.

Among euro zone officials, therefore, the thinking goes that the best Tsipras can angle for is an easing of loan terms without any reduction whatever to the principal amount due.

This would involve lower interest fees in addition to longer maturities, possibly providing a little leeway on the expenditure front.

Bruegel researchers Zsolt Darvas and Pia Hüttl have suggested Greece could benefit to the tune of €31.7 billion through a cut in interest rate on the first bailout package in 2010 and by extending the repayment of those loans and the loans granted under the second bailout deal in 2012.

That is no small amount of money, but will it be good enough for Tsipras? This is a man, after all, who castigated his predecessors for weakness in their dealings with Europe.

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