New Greek Bailout, Same Old Woes

Greece is in a deep hole, and everyone involved seems determined to keep digging. As the country bids for a third bailout since 2010, the momentum from economic damage inflicted during the last five years threatens to undermine the latest agreement.

The economy is in free-fall and politics are unstable. One crisis feeds the other. Just as Prime Minister Alexis Tsipras appeared to accept that he had no alternative but to work with Greece’s partners on a new bailout, hard-liners in his Coalition of the Radical Left (Syriza) declared that they wanted no compromise with creditors, and are now pushing to leave the euro.

For now, the dissidents have deprived the government of its parliamentary majority, forcing it to rely on opposition party votes to pass measures that are preconditions for a new loan with the European Union, the European Central Bank and the International Monetary Fund. (Agreement must be reached by Aug. 20, when a 3.2 billion-euro debt to the E.C.B. matures.)

New elections later this year appear likely, which will make implementation of reforms more difficult, as parties will not want to antagonize voters before the vote. The government has lost credibility both abroad and at home: first for the uncompromising stand that it took for many months, and then for its sudden capitulation. In another twist, just as Athens decided to do all it could to stay in the eurozone, Germany’s finance minister, Wolfgang Schäuble, whose opinion could be decisive, has appeared equally determined to push Greece into an (ostensibly temporary) exit from the common currency. When only stability can help Greece, nothing is settled.

Alexis Tsipras is trying to end a rebellion that threatens his coalition government. Credit Thanassis Stavrakis/Associated Press
Alexis Tsipras is trying to end a rebellion that threatens his coalition government. Credit Thanassis Stavrakis/Associated Press

Before Syriza’s election, Mr. Tsipras assailed the 240-billion-euro bailout program, which at great social cost had yielded small economic gains — a tiny primary surplus and a brief period of stability. Once in power, Mr. Tsipras declared an end to austerity and reform, while demanding a major debt write-down and more funding. The government’s main argument — that Greece had to be helped because its collapse would jeopardize the euro — was akin to donning a suicide vest and making threats.

Over the past years, our European Union partners and the E.C.B. had strengthened their defenses against possible contagion. On June 30, the previous bailout agreement expired and Greece became the first developed economy to default on the I.M.F. Mr. Tsipras called a snap referendum and urged voters to reject the most recent deal proposed by creditors. Depositors, fearing Greece might leave the euro, rushed to withdraw their money.

The E.C.B. declined to raise the limit on emergency funds, forcing the government to close the banks and impose capital controls. Amid all this, in the referendum 61.3 percent of the people backed Mr. Tsipras, handing him a personal political victory and obliging him to maintain tension with creditors.

The bottom fell out of the economy. Since the end of June, depositors and pensioners have been able to withdraw no more than 60 euros per day. In July, businesses imported only about 50 percent of the goods that they bought a year earlier and many are unable to pay cash up front to suppliers. Exporting industries, which must import about 80 percent of their raw materials, have been hit particularly hard. Small manufacturers, craftsmen and merchants registered a loss of at least 50 percent of their revenues, according to the Hellenic Confederation of Professionals, Craftsmen and Merchants.

The Parliament’s State Budget Office noted that if capital controls and the lack of liquidity caused a 50 percent drop in consumption, this would cost the economy 1.75 billion euros (or 0.9 percent of gross domestic product) each week. The Markit survey of purchasing managers, a commonly used index, noted a stunning collapse of confidence and output, dropping to 30.2 (a score below 50 marks a sector in recession, and 40 means a major crisis).

On Aug. 3, opening for the first time after capital controls came into effect, the Athens Stock Exchange general index plunged 16.23 percent, a record. The bank index lost 63.8 percent in the first three days of trading.

Even before the latest damage registered, the European Commission and the European Central Bank were forced to revise downward their forecast for Greece’s growth. From 0.5 percent predicted for 2015 in their spring forecast, they now expect a decline of 2.0 percent to 4.0 percent, according to a July 10 report. It concluded that Greece was expected to have a funding gap of more than 74 billion euros from July 2015 to July 2018.

The I.M.F. put the figure even higher, at 85 billion euros. Negotiations are for a loan of about 86 billion euros, but with banks in such serious trouble (they may require up to 25 billion euros more for recapitalization) and a severe shortfall in revenues, it is difficult to know what Greece’s true needs will be.

The Bank of Greece (the country’s central bank) noted in a June report that nonperforming loans came to 100 billion euros; in the same month, tax arrears amounted to 78.37 billion euros, according to the General Secretariat for Public Revenues. The first half of 2015 showed a 2.36-billion-euro shortfall in revenues. With more debt and a still-unknown impact on G.D.P., even the European Commission’s “adverse scenario” of debt amounting to 187 percent of G.D.P. in 2020 could be optimistic.

The figures are merciless and Mr. Tsipras’s conversion, though radical, still appears halfhearted, a result of pressure. In an interview with state television, he explained his sudden decision, at a 17-hour European Union summit meeting, to ignore the referendum’s overwhelming “No.”

“Under conditions of financial asphyxiation and blackmail, there were two alternatives on the table: agreement under these terms or a disorderly bankruptcy, an exit from the euro,” Mr. Tsipras said. He and members of his government are openly opposed to many measures that they now must pass and implement.

No one comes out clean. Each protagonist has pointed at the others’ failures and then added to Greece’s woes. The creditors’ fixation on austerity, when it was clear that this in itself could not fix Greece, caused immense damage to the political center, the force that could lead Greece toward reform. Now those parties, discredited by their mismanagement of the country in the past, and for implementing unpopular reforms, must support a party that came to power by attacking them.

Syriza’s anti-austerity crusade, and its promise of alternative policies, found enthusiastic backing among a number of prominent international economists and political movements, who could not see that — at least until now — the new government’s plan was little more than wishful thinking and a total aversion to any modernizing reforms. This places Syriza squarely in the populist political tradition that brought Greece to this sorry state. We must still wait for a true radical force to emerge, one that will aspire to make Greece an efficient state, a viable economy and a just society.

Nikos Konstandaras is the managing editor and a columnist at the newspaper Kathimerini and a contributing opinion writer.

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