It was a quiet summer in Greece — a stark contrast to the chaos of July 2015 when the referendum vote on the European Union bailout package took place. But that eerie calm may be making way for a contentious autumn.
Greece’s Prime Minister Alexis Tsipras is grabbing hold of a megaphone in search of economic relief. Here was his opening salvo to European creditors ahead negotiations and local political challenges.
“Greece has kept its part of the agreement and expects the same from its partners. We are not simply seeking, we are demanding and expecting specific measures that will render debt sustainable as part of the deal we are implementing.”
With those tough words in a local newspaper — ‘Real News’ — interview, one could suggest the prime minister is pursuing a bold counter-offensive ahead of a second bailout review. The talks are linked to controversial labour reforms in a country that is struggling to grow again. The Greek economy expanded by a paltry 0.3 per cent in the second quarter but that at least beat most expectations of a contraction.
His call is for debt relief. After many bailouts, Greece’s long-term government debt actually soared from 120 per cent of GDP to 177 per cent last year according to the latest figures from the European Commission in Brussels, with expectations of that topping out in 2016 at over 180 per cent!
The jobless rate remains near a record at 23.5 per cent and youth unemployment is double that level. Tsipras also complained that creditor demands of hitting a primary budget surplus of 3.5 per cent of GDP beyond 2018 is not realistic, something most economists have suggested has strangled any hope of a decent recovery. A primary surplus measures the country’s budget health without debt payments factored in.
The prime minister this summer did garner support in his debt fight from an unlikely source in the International Monetary Fund (IMF). In a widely overlooked review from the fund’s Internal Evaluation Office, it made a blunt assessment looking back into the rear view mirror.
“An upfront debt restructuring would have been better for Greece although this was not acceptable to the euro partners,” its authors recounted. As the old adage suggests, “better late than never”, but Tsipras’ electorate would find this mea culpa bittersweet.
While the IMF has been highly unpopular for touting a message of austerity since the crisis unfolded, a shift actually started to take place last May. The fund’s Managing Director Christine Lagarde wrote to the 19 members of the Eurozone suggesting that debt restructuring must be on the table.
That message was largely ignored, primarily because the Eurozone’s biggest creditor Germany does not want to open the floodgates within southern Europe. If Greece was given a “special deal”, then potentially Spain, Portugal, Cyprus and Italy could come knocking at the Eurozone door for similar treatment.
The young leftist leader is no novice to surviving the political twist and turns of economic collapse. After seeing the economy shrink by 25 per cent in six years, he knows full well there’s a real danger of losing local support. Self-styled anarchists have taken to the streets protesting against today’s status quo and Greeks in general are suffering from reform fatigue.
So he is trying to stay ahead of the curve by using the UK Brexit vote to move away from business as usual. Tsipras compared Brussels “to a sleepwalker heading toward a cliff”, suggesting Britain’s departure should be averted and would “either awaken the EU or mark the beginning of the end.”
The initial response after that vote was to perhaps revaluate the European model. That was the call from Matteo Renzi, Italy’s leader who is also suffering badly from the G7 country’s long-standing anaemic track record.
Even German Chancellor Angela Merkel made initial remarks suggesting the Brexit vote was a “watershed, historic moment” but she finished off the week after Brexit by saying that each country will be guided by their own interests.
And herein lies the challenge for Greece and the other lacklustre performers. All politics are local.
Trying to corral a total of 28 countries of the EU is not easy. The common good to revive a healthy market has never taken top billing, and as Merkel suggested probably never will.
She had to contend with local elections, a good barometer for what may lie ahead of national polls next year. Her Vice-Chancellor Sigmar Gabriel dented the armour of Germany’s iron lady, suggesting policies on immigration and integration have failed Europe’s economic stalwart.
In that context, it will be a Herculean challenge for Greece’s prime minster to dig out from under his mountain of debt.
John Defterios is CNN’s Emerging Markets Editor.
