Eurozone Summit of 12-13/07/2015. German Chancellor Angela Merkel, the Greek Prime Minister Alexis Tsipras and the French President Francois Hollande (seen from behind) have a private discussion ahead of the summit. (EC Audiovisual Services, Date: 13/07/2015).
On 9 July this newspaper predicted that the Greek Prime Minister Alexis Tsipras was adamant about keeping his country in the Eurozone. In order to do this the Sting foresaw that he was prepared not only to pay a dear price for a third bailout scheme (April 2010, June 2012 and July 2015) financed by Greece’s creditors (European Union, European Central bank, International Monetary Fund), but he was ready to decimate his own left wing party, the SYRIZA, while passing this solution in Parliament with the votes of the opposition parties.
What ‘prior actions’
It turned out yesterday in a crucial Parliamentary vote on ‘prior actions’, that a round number of 40 SYRIZA deputies didn’t back Tsipras’ proposal, including the tough terms and conditions as foreseen by last Sunday’s a-Greekment (agreement) concluded at the Eurosummit (the council of the 19 Eurozone leaders). These ‘prior actions’ are set in exchange of Greece retaining its position in Eurozone (more austerity, wholesale privatizations, tax increases, reshuffle of the pensions system, etc). The SYRIZA dissident deputies claimed that their voters’ mandate at the 25 January legislative election didn’t include a ‘capitulation’ to creditors and indirectly opted for a Grexit and the introduction of a national currency. Tsipras indirectly considered this as a ‘coup’ against his government and replied that the option of a national currency is tantamount to total catastrophe.
The ‘prior actions’ legislation passed yesterday include large increases in indirect and direct taxation (VAT and income tax), abrupt stoppage of early retirement before the age of 67 or 62 with full 40 years of social security contributions, a structural reform of the pension funds system and the independent functioning of the Greek statistical service (ELSTAT). More measures will be promulgated on 22 July concerning the adoption of a new and more effectual Civil Procedure Code and the full independence of the taxation authority.
New political horizon
After yesterday’s Parliamentary plenary, Greece’s political scenery has drastically changed. Until yesterday, the Tsipras government had a solid Parliamentary backing from 149 SYRIZA representatives plus 14 ANEL deputies in a house of 300. This last nationalistic and right wing group has been cooperating with SYRIZA as a junior government coalition party right after the 25 January election. Yesterday night or rather earlier today, the ‘prior action’ legislation was passed in the legislative with a large majority of 229 votes backed by the opposition parties (major opposition center right New Democracy, socialist PASOK and center-left Potami-river) which supported the extra austerity, more privatizations and the deep structural reforms.
A massive group of 39 SYRIZA deputies (32 voted ‘no’, 6 said ‘present’ and one didn’t show up in the plenary) didn’t back the new austerity measures as proposed by their own government. This leaves the Tsipras coalition administration without an absolute Parliamentary backing turning it into a minority government. The 163 parliamentary majority of the coalition government which was formed after the 25 January election was thus depleted into mere 124 in a house of 300.
Backing from the opposition
Of course with the expressed and concrete willingness of the opposition parties to do whatever it takes to keep the country in the Eurozone, Tsipras can easily pass also the remaining legislation in order to comply with the Sunday 12 July unanimous a-Greekment of the Eurosummit. This ability though may not include other government topics like legislative initiatives concerning immigration, education and health or other crucial fields of action. Clearly the Tsipras administration is now a minority government and this cannot continue for more than a few months.
There is no question then that a new early election is undoubtedly within Tsipras’ political planning for the immediate future. It is also unquestionable that he will choose the best timing to announce such a new legislative ballot, aiming at maximizing his electoral appeal, as the constitution enables him to choose the time he wants. Tsipras’ presently outsized political capital, as reckoned by the unbelievably high score in favor of his own choice ‘no’ (OXI) in Sunday’s 5 July referendum (61,4%), will be surely damaged after the a-Greekment he concluded last Sunday 12 July with his 18 Eurozone colleagues. So he has to ponder the future adverse effects of the new severe austerity measures.
Planning a new election
Understandably his planning is based on the belief that he can clearly win a general election within the next months, before the new austerity measures and the increased taxation start denting incomes and growth, undermining his appeal in the electorate. To increase his electorate potential he may wait for the October discussions with the country’s creditors about a rearrangement and a possible alleviation of Greece’s sovereign debt.
According to the Eurosummit agreement, the creditors have undertaken the obligation to start a discussion in October about the alleviation of the sovereign debt servicing. They have already agreed to refinance the maturing debt up to 2018 and Tsipras will now press hard for a rearrangement of debt servicing beyond that year. This will be done by interest rate reductions, prolongation of maturities and increase of grace periods.
Backing from the IMF
According to the latest IMF estimate – including the new loan arrangement of €84 billion Tsipras agreed with the Eurosummit – Greece’s debt is obviously unsustainable. The relevant IMF’s staff preliminary public debt update says that the “debt is expected to peak at close to 200 percent of GDP in the next two years, provided that there is an early agreement on a program. Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far”. The IMF also proposes a very long grace period. The relevant passage says, “If Europe prefers to again provide debt relief through maturity extension, there would have to be a very dramatic extension with grace periods of, say, 30 years on the entire stock of European debt, including new assistance”. This will send the latest maturities of the debt up to 2080.
Germany has to pay for the Fund to stay
It is obvious that Tsipras, with the support of IMF, will get the best possible debt relief during the next few months. Of course Berlin being the largest creditor to Athens will provide a very strong resistance in alleviating the Greek debt. At the same time Germany has an expressed wish that the IMF stays in Europe and takes care of Greece’s bailout. For this to be possible though the IMF will surely demand that the country’s debt has to be alleviated up to the point of becoming sustainable. The IMF cannot be involved in a rescue mission if the country’s debt is not sustainable. As a result the debt rearrangement has to be important and Germany would be forced to pay.
In conclusion, the Greek Prime Minister armed with a sizable debt relief making Greece’s debt sustainable will undoubtedly use his constitutional prerogative and call for an early election possibly before the end of the year. At that time his appeal to voters would supposedly have reached its maximum. In reality there is no other political force if any, able to lead the country through the economic and social ordeal of the next two to three years.
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