Posted on 01/25/2015 4:26:33 PM PST by annalex
It will require a change of stance on many issues for Alexis Tsipras to become Greece’s version of Lula
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By Dimitris Kontogiannis
The left-wing SYRIZA party’s triumph in the Greek national elections sends a strong message across the eurozone that excessive austerity will have political and social repercussions if pursued for a long time. But SYRIZA will have a tough task convincing the country’s official lenders to continue funding and adopt its policy proposals, many of which are at odds with the current adjustment program. A compromise seems to be the best solution, but requires concessions from both sides. Whether this is possible remains to be seen.
The outcome of the general elections represents a triumph for SYRIZA and its charismatic leader Alexis Tsipras, who campaigned on a message of hope and an end to austerity. It is a victory of the anti-austerity forces against the policies of economic orthodoxy pursued by the conservative New Democracy party and Premier Antonis Samaras, who chose to campaign on a message of fear if SYRIZA won the elections. One may also say it is a victory of the forces who oppose a good deal of the structural reforms cited in the economic program designed by the European Commission, the ECB and the IMF.
Regardless of the election outcome, its symbolism and the potential to help change the political landscape and policies in other southern eurozone countries, as some high-level SYRIZA officials think, there is something which cannot change. Greece needs official sector funding of between 6 and 15 billion euros, depending on economic assumptions, to meet its obligations in 2015. If it does not get this money, the country will not be able to pay maturing loans of 8.6 billion euros to the IMF and about 7 billion to the ECB for expiring bonds. This means it will default.
Tsipras and other high-level SYRIZA officials have said they will repay the IMF loans, of which about 2.1 billion euros mature in February and March. Greece’s total obligations, including interest, to the IMF and others amount to a bit more than 4 billion euros in the next two months. This is not a small amount for a country facing a gradual liquidity squeeze. Greek bonds of about 6.6 billion euros in total held by the Eurosystem expire in July and August.
Of course, SYRIZA has said in the past it plans to issue T-bills and have the Greek banks buy them to get state funding. But this depends on the good will of the ECB and the European Union. Greece can borrow as much as 15 billion euros annually by issuing T-bills under the existing agreement. So lifting the upper limit to, let’s say, 20 billion euros will likely require the new SYRIZA government to ask for an extension of the adjustment program which ends on February 28, and perhaps some other concessions.
The extension of the program will likely be the first major test for the new government since SYRIZA has repeatedly said it wants to do away with the adjustment program. On the other hand, the EU has made it clear the new government will have to ask for such an extension to be granted. Whether a middle ground can be found between the two sides for face-saving purposes remains to be seen. The extension is important for the ECB to continue to provide cash to local banks to replace deposit withdrawals and an unwanted contraction of the economy be avoided.
But the most important issue on the new government’s agenda will be the negotiations with the lenders. In his last interview with Greek TV stations last Friday, Tsipras said that he does not recognize the troika, the representatives of the European Commission, the ECB and the IMF. Other SYRIZA officials have said they do not want to negotiate with the troika and do not intend to finish the pending review of the program. Instead they want holistic political negotiations on all matters, including the debt, with the official lenders.
So one wonders what will happen if the EU, the IMF, Germany and so on tell the Greeks to talk to the troika, even without the ECB’s participation? If SYRIZA sticks to its guns and the lenders do not yield, there will be no negotiations. If the new government decides to talk to the troika, the process will go on but one should expect reactions from within the party. Again, can a middle-ground solution be found so that negotiations begin and a standoff is avoided? It is hard to say. Nevertheless, it is clear there are a few issues to be resolved even before the Greek side and the representatives of the international lenders sit down at the same table.
Undoubtedly, the election outcome represents a triumph for SYRIZA and its leader, who has the opportunity to write history by both becoming the country’s first leftist prime minister and its reformer. But it will require a change of view on many issues for Tsipras to become Greece’s Lula. How he handles the extension of the existing program and the negotiations with the lenders will be the first litmus test.
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This was an extraordinary victory for the radical left in Greece - probably beyond its own expectations.[...]
Syriza wants to reverse cuts in public services and increase salaries and pensions again. It wants to write off a large chunk of Greece's huge public debt, most of which it now owes to other governments in the eurozone.
[...]
Those who have muttered that Syriza's policies are mad, that its leaders are deluded, are now going to have to deal with the reality of this decisive election victory.
The party ran on a platform to cut middle class taxes, raise spending and revive the economy.
Whether it can do that remains an open question.
They continue to have time and money to be influential in politics, so obviously, spending cuts were inadequate. Need to cut more, and need adequate spending cuts here, in the U.S.A.
Wow, they copied His Arrogance .... cut middle class taxes, raise spending and revive the economy.
No political party in the world is going to run on austerity.
Drastic cuts in spending are politically unsustainable... and massive tax increases face the same fate.
This limits what is possible for governments to do without facing social disintegration. That reality is unappetizing to financial markets.
Nevertheless, its the truth.
As John Goodman pointed out, you’re talking about a 38% cut in spending or a 58% increase in taxes.
For our mainstream parties, that’s political suicide. And the hardship wouldn’t be worth it.
People can only take that for so long. What the West inflicted on Greece isn’t going to happen elsewhere in the EU... because any politicians who impose austerity will be thrown out of office.
Austerity is that god that failed in Greece.
Over 18 trillion dollars in debt in our own nation, and much greater total debt in state and local levels of government. Spending cuts will happen sooner or later, one way or the other. The experiment in recirculating debt is already failing. The good part is just ahead.
And on Greece, Greece hasn’t seen austerity, yet. The EU and USA haven’t, either. Austerity happens, when the real producers (e.g., Chinese slaves) stop loaning money to another government. And investments by net liabilities don’t count (those who receive more debt/revenues than they pay).
I don’t think it is any kind of open question. Syriza wants to default of existing loans and then ask for more loans, and increase government spending, and throw fiscal discipline to the wind. There is a huge 2+2=1,000 written all over it.
That is a typical left winger party that can run on incoherent promises for ever, and if they ever get to govern, — that rare historical phenomenon that happened today — they will do more or less the same thing any government would and blame foreign governments for failing to give the Greeks a rose garden they promised.
But here’s good news: this might be the beginning of the end for the EU a a whole.
Obviously, most international sovereign debt is going to be repudiated, and fairly soon.
When banksters and their friends write about this, they usually talk about how horrible that will be.
Iceland has made out fairly well, however. We’ll see how it goes with the PIIGS.
Oh yeah. The problem with Syriza is not that they will default, — any reasonable government should, given the situation, — but that they want new loans at the same time and plan keynesean government expansion.
Well said.
The European Left's candidate for the European Commission presidency, Alexis Tsipras, Friday called for the immediate release of Sinn Fein leader Gerry Adams who is been held for questioning in connection with the 1972 murder of Jean McConville. Tsipras called the arrest a "politically inflammatory act against democracy".
Good collection, thank you.
My pleasure.
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