21 Dec 2014

Greece election: opposition party’s main enemy will be time

There’s a quiz doing the rounds on Facebook about Greece’s radical left opposition party Syriza, called “Are You Syriza Enough?”.

The last question is: “Do you think Syriza will succeed as a government?”.

The choice of answers are not flattering to the far left party’s prospects:  No, No way, Haha No, or Nobody believes that.


As the deadline for electing a president looms, and after that an election and possible Syriza government, it’s worth looking at the challenges facing the party’s leader, Alexis Tsipras, if he becomes prime minister.

Because while much of Greek politics is driven by debt, secrecy, rumours and cliques, debt figures don’t lie and nor do tax revenues – at least, not when they’re properly monitored.

Whether the next governmet is a revamped coalition led by the current prime minister’s New Democracy, or one led by Syriza, it will face the same, harsh debt dynamics.

In this post I will try to make sense of the debt picture – drawing on financial market research notes from Eurobank, Renaissance Capital and BoAML – and interviews with two Syriza economic policymakers, conducted in mid-December 2014.

Greece by numbers

Let’s start with the facts. Greece owes 319bn euros divided as follows:

– 205bn to Euro area governments
– 27bn to the ECB
– 31bn to the IMF
– 56bn to private bondholders

Though this is a massive debt, four years of bitter austerity have managed to get the public finances under control.

Unlike Britain, Greece now runs balanced books year on year and is set to run a surplus – though there is an argument with its lenders about how real that is.


The bailout by the Troika (ECB/IMF and EU) is set to end in February 2015. After that, the current centre-right coalition led by Antonis Samaras faces the need to borrow 22bn euros in fiscal years 2015 and 2016.

Eurobank analysts say the solution being discussed is for the EU to extend an “enhanced conditions credit line” from the ESM bailout fund of 9.5bn euros over two years; and for the IMF to lend 12.5bn euros,  meeting Greece’s needs.

But since the original bailout only postponed crunch-time on repaying this massive 319bn euro debt, most observers think there will have to be a further writedown of the debt.

One suggestion is for the EU to extend repayment of its debt by 20 years, which would be the euqivalent of writing off about 50bn euros, plus zero interest for 10 years, plus a very low fixed interest rate on the EU loans of 0.6 per cent .

This is the “theoretic” debt write off modelled in a note by Eurobank Global Markets Research on 17 December 2014, and can be taken as close to what’s being discussed.

Looking long term

Such a debt writedown would only affect “official sector” – that is, EU – lenders and would reduce Greece’s debt to GDP by a massive 25 per cent in the years 2033-2042 (yes, bond markets think that far ahead). But the situation would then deteriorate rapidly from 2043 to 2064.

To get this the short-term 22bn euros, the Samaras government has to sign up to more austerity, and end its feud with the Troika over the real state of public finances.

As the austerity involves further wage cuts and further attacks on employment rights, it is unsure it can make it happen. Hence the current crisis.

It needs a better mandate to do this deal and has effectively provoked the presidential election as a way of getting a confidence vote for its strategy.


Now let’s look at Syriza’s plan.

It says it will negotiate with the EU for the write-off of half the 319bn euros.

It will not try to get a write-off from the private sector, and will pay back IMF loans in full, so all the pain falls on the EU and ECB. After that it wants the ECB to buy all Greek debt at zero interest for the next 60 years.

If you compare this to the Eurobank “theoretic” solution, it is much more favourable to Greece but technically at least on the same planet.

The 60-year debt deal simply recognises that a 20 year deal only pushes the problem out to the 2040s, and that Greece’s debt is in fact unpayable.

The problem for Alexis Tsipras is the short term:

(a) He has promised to “cancel austerity” and to exit the bailout conditions unilaterally – at the same time as a negotiated write off of the EU debts.

But around 5.3bn euros of the bailout loan is due to be given in 2015, which would be withheld if he cancelled the conditions. On top of this it would have to find another 14bn euros over the next two years if it simply balances the books and refuses to run them “in the black” as the Troika demands.

(b) At the same time he will cancel the privatisation programme that is set to bring in 5.6bn euros over 2015-16, adding that amount to the 22bn euros Greece needs to borrow.

(c) On top of this, 2015 is a massive year for having to roll over or repay debts: 17bn euros become due in 2015 falling to 7bn euros each in 2016 and 2017, and about 5bn euros in 2018.

(d) Greece currently is not expecting to borrow on the markets, from investment funds.

All told, analysts at Bank of America Merill Lynch (Macro and Equity Strategy 16 December 2014) think Tsipras will face a budget black hole of at least 28bn euros in the first two years of his government, with nowhere to borrow from and 17bn euros of repayments to make in the first year.

The risks of this situation are:

– that it will prompt capital flight if Syriza looks like winning
– that Syriza, lacking experience of government and EU institutions, will miscalculate the negoations and tripwire a debt default crisis
– that Syriza’s mass base will not accept the slow pace of economic change implied in the plan, and that the party will disintegrate under the pressure of being in power.

All three risks, if realised, lead in the same direction, but at a different pace – namely towards capital flight, a retail bank run, a Cyprus-style “bail in” of the banks and ultimately default. Though Grexit from the Euro is not favoured by either side, it remains a possibility.

What can Syriza do?

Syriza’s ability to negotiate successfully will depend very largely on mood music in Europe.

If, for example, the Greek centre right implodes – during or after the election – it would become clear to the EU that there is no point holding out to cause chaos and a second election: the winners then might only be more radical parties.

It is clear from my discussions with George Stathakis and John Milios, the economics professors who have designed the Syriza debt programme, that they are positioning themselves within a wider European debate.

Parts of the EU establishment want to use ECB quantitative easing (QE), loosen fiscal austerity and pursue a Keynesian version of structural reform.

The prevailing view in Germany is to keep fiscal austerity, do everything short of QE and to do a neoliberal version of structural reform.

Syriza’s economics professors believe that if they can insert the Greek debt problem into this dynamic, and with the help of the two bigger left parties – Die Linke in Germany and Podemos in Spain – and indeed some left social democrats, they can negotiate the big debt write-off.

But their own domestic growth programme is reliant on inward investment happening at the same time as a re-regulation of the labour market and the restoration of some welfare spending.

Germany the key?

Much has been made of the disastrous meeting Mr Stathakis and Mr Milios had with private investors in London.

But they are not planning to default on private debt, and the 2015 repayment crunch is primarily with the IMF and EU.

Earlier this month Charles Robertson, of Renaissance Capital, issued a note saying:

“We see a fair chance that German Chancellor Angela Merkel will say yes to Syriza.

“She made the decision in 2010 that Greece should stay in the eurozone and that probably prevented a far wider global crisis.

“Saying yes to Syriza is not that expensive (roughly 1 per cent of eurozone GDP)… We think Europe would be a step closer to the fiscal union that Germany clearly rejected in the 1990s, when it agreed to sacrifice the Deutschmark for the euro via the Maastricht treaty.” – Thoughts from a Renaissance Man, 9 December

However, the same analyst warned that the precedent might persuade Merkel and the ECB to say no.

So the biggest question for the survivability of a Syriza government is whether the EU governments and the IMF play ball.

Those who have met the Syriza economic leadership, comparing notes, tend to say they are acting as if they know Mrs Merkel may say yes when there is a high likelihood she will say no, and they don’t realise how tough the ECB, IMF and private investors are going to get in the short term, to force Syriza to impose its own form of austerity.

The timing is interesting. Greece has a 7bn euro cash buffer built into the original bailout deal.

There is also some financial engineering whereby the state can borrow from public enterprises, to the tune of about 7.5bn euros. Plus the banks are set to repay about 2bn euros of state bailout money.

So the smart money says Mr Tsipras could meet debt redemptions coming due in the first half of 2015.

However, the second half is the crunch point. Of the 17bn euros due, 11bn euros is in the second half, and BoAML’s analysts think that even with all this duck and dive economics, Syriza would have to raise about 11bn euros in the markets.

If Syriza does form a government there will certainly be a multilevel political crisis in Greece.

The official system is riddled with corruption, from hospital doctors on the take to discrepancies at the very highest levels of government. Out of control actions, and fascist infiltration into certain police units, make the possiblity of destabilisation there non-negligible.

The large anarchist left, which recurrently clashes with the cops, will probably up the ante.

As the centre-right economist Yannis Palaiologos points out in his book this year, The 13th Labour of Hercules: Inside the Greek Crisis, the main problem in Greece is not debt, but the fact that an independent state, standing above local and sectoral claims, barely exists.

The Greek state is a mass of claims and counter claims which are impossible to navigate unless you use networks of party privilege.

As all these networks are clustered into government, the sudden departure of such networks form power will make Greece very hard to run, even without workers on strike, migrants camped on the streets and anarchists squatting in buildings.

Syriza’s popularity

So a worst-case scenario under a Syriza victory is: short-term repayment crisis, botched negotiations with the EU, social upheaval, capital flight and default.

A best-case scenario – for Syriza – would see its EU allies force a long-term debt deal, but it would have to ride out and tactically manoeuvre on the 2015 debt repayments, as suggested above, and there would still be massive social upheaval.

When you consider these risks, and ask why the party is still – with the mainstream media warning of armageddon – 3-4 per cent ahead in the polls, the answer is clear.

Five years of austerity have collapsed the Greek economy, made millions of people go into a psychological free-fall, and they feel they have received no moral solidarity from their own elite or from the European elite.

Syriza is on 33.3 per cent in the latest poll. The communist KKE and the left social democratic Potami and Democratic Left together poll another 8 per cent.

Other anti-Troika parties, including the fascist Golden Dawn and the moderate Independent Greeks, have another 5-6 per cent between them. New Democracy is on 30 per cent, the coalition partner Pasok down to 6.2 per cent.

That means a rough majority of Greeks want an end to austerity and to this permanent coalition of old-style right and centre parties based on patronage.

If the goverment fails to get its presidential candidate in by 29 December, their wishes might come true.

What they will actually get depends on whether a party of activists and professors can govern the most troubled economy in the developed world.

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