Cyprus Mail
Guest Columnist Opinion

Creditors hope for broad Greek coalition; fat chance

By Paul Taylor

IF GREECE’S international creditors had a say in today’s general election, they would want voters to force a grand coalition of the main political parties to implement the country’s tough bailout programme.

But there is little chance of such an outcome, which both main party leaders ruled out in a television debate during the week. European officials have made such a mess of trying to sway past Greek votes that they have largely given up trying now.

“There is some concern that Greece may end up with a hung parliament and a weak government, but attempts at outside influence have been consistently counterproductive in the past,” said an EU official involved in the bailout talks.

European officials console themselves with the belief that whoever wins will have no option but to implement the pension, labour, administrative and tax reforms required by the lenders because Greece is on its final warning and desperately needs EU help to restructure its banks and stay in the euro zone.

That too may be an illusion. Any new government is bound to seek wiggle room to fulfil election promises to its supporters – pensioners, farmers or organised labour. And Greece’s position as the biggest transit route into the European Union for refugees fleeing Syria, Iraq and Afghanistan may give it some extra leverage with Brussels and Berlin.

Ironically, Athens’ best ally in the coming months may be the deeply unpopular International Monetary Fund, which has made continued participation in support for Greece conditional on European official lenders agreeing to restructure its debt. Germany, with the biggest exposure to Greece, is desperate to keep the IMF involved.

European Commission President Jean-Claude Juncker, widely judged to have blundered last December when he warned Greeks against letting “extremist forces” take the wheel through a “wrong election result”, has been more circumspect this time.

He told the European Parliament last week that Greek leaders after the Sept. 20 poll would have to “stand by their word and deliver on the agreement – whoever governs.

“Broad support and timely delivery of the reforms is what Greece needs, so that confidence can return both among the Greek people and for the Greek economy,” Juncker said in his State of the Union address.

Critics say Brussels has frequently misread Greek politics in more than five years since the debt crisis erupted in 2010, with a tendency towards wishful thinking.

When leftist Prime Minister Alexis Tsipras called a referendum in July to reject the bailout terms then on offer, EU leaders piled public pressure on Greeks to vote ‘Yes’ to the deal or face economic oblivion and a possible exit from the euro. Their warnings backfired, fuelling a massive ‘No’ vote.

Then Tsipras performed a U-turn and accepted even more stringent terms after Greece had to close its banks, impose capital controls and ration cash to halt a bank run.

So when the then-premier called this election, days after signing a memorandum on an 85-billion-euro third financial rescue on Aug. 19, Juncker’s chief-of-staff tweeted that the snap poll could broaden support for the bailout.

In Brussels’ eyes, Tsipras had morphed from reckless radical to a pragmatic strongman who had faced down Marxist hardliners, seen off his conservative opponent – ex-Prime Minister Antonis Samaras – and would now sweep to victory and implement the bailout plan.

Opinion polls suggest Greeks don’t quite see it that way. Weakened by defections among leftists and the young activists who propelled him to victory in January, Tsipras’ Syriza party is neck-and-neck with the centre-right New Democracy party.

Tsipras and new opposition leader Vangelis Meimarakis both excluded working with each other in a three-hour television debate on Monday, and there are good grounds to believe them.

Greek analysts say Syriza would lose the last of its anti-establishment credentials if it collaborated with a party that has ruled most often since military dictatorship ended in 1974.

New Democracy may vote for some of the reform legislation stipulated in the bailout, but it has no interest in playing second fiddle to Syriza in a government that is bound to face discontent as spending cuts bite deeper.

In an interview with Reuters on Tuesday, European Central Bank Vice-President Vitor Constancio held out the prospect of an early normalisation of Greece’s financial position if the new government sticks to the bailout plan.

“The stage is set for a gradual dismantling of the capital controls,” Constancio said. “They will be eliminated as they were in Cyprus.”

He added that Greek debt should not be viewed in simple ratios to gross domestic product – alluding to extending loan maturities and grace periods – saying he expected EU and IMF views to converge when debt sustainability is discussed in the first review of the new programme due in October or November.

“A haircut has been refused by the member states and I certainly hope it will not be necessary in view of the numbers,” Constancio added. “The more one digs into the numbers, the more that sort of conclusion seems to emerge.”  (Reuters)

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