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Survival Guide
Greek Edition
Rough landing ahead

By Alexis Papachelas

Greece is in for a very rough landing, but its intensity will depend on two factors: first, the result of parliamentary elections on June 17 and, second, the reactions of the country’s foreign lenders -- the EU and IMF -- and Washington.

Scenario No1: New Democracy wins the elections and forms a coalition government with PASOK and, possibly, the Democratic Left. The new government tries to renegotiate the loan agreements without risking the flow of bailout money from its creditors. This will not be an easy task.

Expectations in Greece are high, perhaps too high, about how much room for bargaining we have. Either way, the troika may offer some limited concessions, as it were, that mostly concern the extension of the fiscal adjustment period and an additional debt haircut in a few months. A possible collapse of Spain would most likely make Europe’s response a bit more flexible. This, however, does not apply to the IMF. The Washington-based organization operates on the basis of very strict rules, providing German Chancellor Angela Merkel and like-minded Europeans with the perfect alibi against skeptics in other parts of the continent.

Even if they were to accept a renegotiation, Greece’s European peers and lenders will not back down on reforms and privatizations. But neither will SYRIZA.

The question is whether the hard-left party will opt to extend its opposition beyond Parliament. The risks are clear: if the new government fails to achieve a major renegotiation of the deal, the troika will be tempted to turn off the spigot of money to Greece, the left will block all reforms and the country will be in for a major political crisis. The ND-PASOK government will have to make a huge effort and our lenders will have to be extremely lenient toward Greece if we are to see this through. In any case, this is the most optimistic scenario.

Scenario No 2: SYRIZA forms a government with Democratic Left and/or PASOK. This could trigger a collapse of the banking system before the new administration is even sworn in. Some Greeks like to attack NATO and enjoy its protection at the same time; similarly, they like to vote for SYRIZA and still hope that ND will come first at the polls. Regardless of what they voted for, of course, if things go awry they will run to the nearest bank.

Let’s say that we clear this obstacle. An inexperienced government that relies on a motley crew of partners is called upon to rule at the most crucial moment. The troika halts funding to Greece and then starts a game of poker that could result in anything from the breakdown of the first leftist government to expulsion from the eurozone.

Political time will accelerate, dilemmas will be critical and will mandate instant answers. Again, the question will be about the tolerance level of the Europeans and the IMF. How far are they willing to go without pulling the plug? In other words, when will the ECB stop funding Greece’s banks and thus shove the country outside euro territory?

Some Europeans have proposed an emergency plan in case everything goes wrong for Greece: Greek banks come under the supervision of the EU that maintains hire-and-fire power. This would give a Greek government room to bargain with the troika, and to even freeze payment of salaries and pensions, without jeopardizing bank deposits.

Of course, there is Scenario No 3. This is the worst-case scenario. Failure to form a government, because of the election outcome or the rapid collapse of the new government, leads to complete paralysis. There is no easy or obvious solution here because there is simply no money to hold another election. The only solution would be a national unity government.

Whichever scenario ends up prevailing, this will certainly not be a dull summer.

ekathimerini.com , Monday June 4, 2012 (19:04)  
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