The dust has started to settle and the signs are not good. Prime Minister Alexis Tsipras has decided to raise the stakes. So have many of the country’s lenders. We will either go to elections in February with SYRIZA playing the anti-EU card, or we will slide into a fresh round of recession and economic misery that will drag on for months before reaching a climax in July.
Greece has slid back into the vicious cycle, but who is to blame? Tsipras knew what he was getting into when he decided to pledge handouts just days before visiting Berlin and ahead of the Eurogroup decision on short-term debt relief. His close aides had cautioned him about the implications. Counterproposals were heard, such as paying off state debts to businesses. He defied the warnings for the sake of short-term political gain.
That said, foreign creditors also bear part of the blame. They pulled the rug from under the feet of former prime minister Antonis Samaras even though his administration had achieved a primary surplus. They underestimated the impact and the country paid a heavy price.
Now, in a way, we are seeing a repeat of fall 2014. The SYRIZA-led government is a very bad government, but it has implemented a large part of the country’s painful commitments. Up until a month ago, many European officials were praising it as the “only hope.” Now they are turning their backs on it, saying it does not believe in reforms.
So we are back in the same vicious cycle. Eurozone hardliners have found an excuse to raise the stakes. Tsipras is losing his cool and starting to feel the game will not play out the way he thought.
Meanwhile, EU governments have their own elections and a growing wave of Eurskeptic populism to worry about. Some are finding it hard to explain to their electorates how the Greek premier is using their money to grant a Christmas bonus to Greek pensioners.
Once you enter this vicious cycle it’s very hard to get out. The real economy will again sink into recession, banks will dry up, and the return to normality will have to wait.
Elections seem the most reasonable solution. The state apparatus is paralyzed anyway. The markets and foreign investors have already factored in elections. Ideally, we would have elections after the review had been wrapped up and some form of stability had been restored.
Future historians will have a lot to say about the repeated mistakes of both the creditors and Tsipras. As always, of course, it’s the people who pay the price.