Just four short days have passed since Greek politics experienced a tectonic shift to the left. The victorious Syriza party, or radical coalition of the left, took power on promises of ending austerity, halving the bailout debt to the EU and IMF, boosting the minimum wage from €580 to €750, halting privatisations, restoring a Christmas bonus payment (12%) to pensioners on less than €700 a month and generating 300000 new jobs. A tax on heating is to be scrapped, low wage and the wage-less are lo get free or subsidized electricity (medical car and food subsidies). Syriza costs this at €11.3 billion and plans to raise the money by cracking down on tax evasion and smuggling, amongst other things. They also intend to abandon a levy on home owners, but introduce a new tax on second homes and luxury homes, of course.
It wants repayment of the fraction of the bailout it intends to honour to be disassociated from the national budget (so it can spend what it wants); a moratorium on payments; the ECB to buy Greek bonds as part of its QE activities and a post-World War II debt conference to be convened (the 1953 London conference agreed to write-off half of German debt). Amusingly, Syriza expects Germany to repay a loan that the Nazis forced the Bank of Greece to give them during the occupation, worth about €11 billion today and part of their coalition is even calling for war reparations. Of course, it shouldn’t feel bound by agreements freely entered into by preceding Greek governments as recently as 2010-12.
A chorus of European leaders and finance ministers have proclaimed that whilst they want Greece to remain in the Euro, they expect her to honour her commitments – the only people talking about a debt haircut are the Greeks. The new Greek leader has been at pains to explain that Greece won’t default, but it is just not credible that Syriza can honour election commitments without doing so. This begs the question, did they just come to power by saying what they knew would be popular, but never had any intention of implementing?
Unless Greece can convince its partners of its intention to honour existing pledges, release of the remaining tranche of €1.8 billion of bailout money before the end of February seems highly unlikely. It is reckoned that Greece needs to find a further €4.3 billion by the end of this quarter to avoid defaulting on existing commitments – nobody in their right mind will provide this to the Greeks whilst these election pledges remain on the table: this opens up the prospect of Greece leaving (or being thrown out of) the Euro.
The Athens Stock Exchange has dropped from 845 points (23/1/15) to stand at 711 at last night’s close. Greek bank shares have been badly hit: Piraeus Bank lost nearly 29%, Alpha Bank 26%, and National Bank and Eurobank around 25%, according to an AFP report. Unsurprisingly, the yield on Greek bonds has gone through the roof with five year bonds attracting a yield of 13.5%.
In terms of Eurozone goodwill, it is possible that a deal could be struck to further reduce the interest payable on the bailout which was halved to 1.5% last March. The term of 15 years to repay the debt could be extended and it would make sense that some of the austerity measures are eased up, particularly if this can be linked to job and growth creation initiatives. However, it is absolutely clear that Greece can’t force the agenda and that its exit from the Euro whilst unwanted by its partners, is a realistic proposition. Indeed, ensuring that Member States take their commitments seriously and taking strong action against any that do not could even strengthen the credibility of the single currency.