4 Jun 2015

Greece debt crisis: the unsustainable ultimatum

They came, they saw, they had – as one Syriza MP put it to me last night – “their balls handed to them”.

For all the smiling and calm displayed by Alexis Tsipras after the emergency Brussels meeting last night, the Greeks know they came off the worst.


Four months of trying to persuade their lenders they can pursue an austerity-lite route out of debt servitude have come to nothing. Issues that engrossed technical discussion for the past four weeks were brushed aside.

Greece was offered an ultimatum. And it was not all bad.

No debt relief

A 1 per cent budget surplus target for this year, in a shrinking economy, looks optimistic – but it is lower than the 3-4 per cent the previous government had been asked for.

A two-tier VAT rise will raise money from the poorest off; but VAT has to rise in a country like Greece where assets are held offshore, and where getting businesses to pay corporation tax is a strategic problem, and does not balance the books short term.

The hardest details for Greece came when its lenders demanded pension payments to be cut by 1 per cent of GDP. However the deal on offer is reported to say that if Greece does not want to hit pensioners it must hit somebody else, to the same extent.

But the biggest problem for Alexis Tsipras comes over what Greece is not being offered. There is no debt relief in the proposal, and though EC president Jean Claude Juncker has a plan to mobilise €300bn to boost southern Europe, not even a last minute emergency could persuade him to allocate any of it to Greece.

Though the terms are tough, there is no guarantee Greece will not face tougher terms in July, when negotiations on the main debt restructuring have to begin.

Sandwiches and theatre

So the problem is: the offered deal is on any metric unsustainable. Greece has no way of exporting itself out of depression; internal devaluation – where family incomes have fallen by up to 40 per cent – does not produce growth.

Two vignettes show why this country is paralysed. I spoke last night to sandwich shop owner, Nick Voglis. His business has shrunk from six employees to one as the austerity has bitten. A former US-resident entrepreneur, his original plan was to grow a franchise but, as he told me, “I don’t trust the business system in this country”.


As the standoff with lenders continued, Mr Voglis told me there’d been a slump in sales. With over €40bn withdrawn from banks since December, there is certainly cash circulating – but many people have bought cars or houses to insure themselves against their bank deposits being seized in any debt default.

What he wants now are elections and the return of a conservative government.

The second vignette came late at night in the packed open-air Theatro Rematias in Chaliandri, a middle class suburb of Athens. A feud between the local Mayor Simos Roussos and what he calls the “night mafia” – the security guard industry – led to the arena being torched two weeks ago. Hundreds of local people volunteered to rebuild it and last night was a concert to reopen it.

The mayor was elected by a coalition of voters belonging to Syriza and two parties even further to its left: the communists and a revolutionary alliance called Antarsia.

Though people feel powerless in the face of the debt standoff, they did not feel powerless to alter their own local circumstances, there were at least four Syriza junior ministers at the concert, amid a crowd of about 2,000 which occasionally erupted into quiet community singing.

As the concert ended all the politicos backstage were had their noses buried in SMS messages from people in Syriza’s high command. The older ones are mainly people from the 1968 generation; they have an existential commitment to the idea of a liberal, social-democratic Europe and they wanted power to do more than just reverse austerity. These are the activists who are pushing citizenship for second generation migrants through parliament next week, and campaigning for civil partnerships, or restructuring the education system. The younger ones are more networked, more inclined to value entrepreneurial space and human rights. But none of them can live with a return of the fiscal, social conservatism that is the implicit project of Germany and its allies.

A country paralysed

Greece is a country riven between left and right in a unique way. Both political factions contain – and indeed have their core within – the professional middle classes. Each will resist the other’s attempt to govern Greece.

And what it looks like to many of the young people squashed together in the open air theatre is that the European Union will only ever permit one side to win.

As things stand right now, without a long-term debt restructuring deal, there is no way Alexis Tsipras can get what was offered last night through his own party. The left is gaining in strength, and as one activist told me – “the pro-default mood is actually stronger among our voters than among our members”.

Watch more: Paul Mason on Greece’s looming debt deadline

Tsipras knows the lenders want him to split Syriza and lead a government of national salvation, involving the small centrist Potami party and elements of the conservatives. But the parliamentary maths are not there.

And if there is a snap election, what is the Syriza that will stand? The left orientated one or the right? Even within Tsipras’ inner circle both factions are represented, but at some point Tsipras’ own premiership will have to become more politically defined.

In truth his tough stance has achieved movement: the movement of the dilemma from technical talks over debt and austrity to a political process involving all the key players in Europe. And he’s lowered the amount of austerity Greece is being asked to deliver.

So the talks resume today. It looks like the IMF will allow Greece to pay the €300m it owes tomorrow on 19 June instead. But even if they do that, and then it leads to a two-month breathing space, as some suggest, it will not solve the basic issue.

Greece can’t pay its debts – and the €7bn bailout money it might get in return for more austerity will simply be repaid to the ECB to service those debts.

Fiscally it’s unsustainable; politically the country is paralysed. Meanwhile on its borders with Turkey it’s facing a new flood of refugees it can barely cope with.

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