Fraught Greek bailout exit to test eurozone resilience

Greece is not yet giving European leaders sleepless nights again, but as the euro zone’s problem child approaches the end of its second international bailout, political uncertainty in Athens is set to test the currency area’s resilience.

The disclosure in late 2009 that Greece had cheated on its figures to conceal a massive budget deficit triggered a rolling crisis that nearly tore Europe’s monetary union apart.

Although there are timid signs the Greek economy may have turned a corner after receiving 240 billion euros ($303 billion) in bailout funds, the political center may not hold much longer.

Prime Minister Antonis Samaras won a vote of confidence from parliament for his flagging right-left government last Friday but political analysts say a snap election is likely next March that could propel the radical leftist Syriza party to power.

It would be the first time a movement deeply hostile to an EU/IMF bailout program has taken office in Europe, sweeping aside center-left and center-right establishment parties tainted by having implemented harsh austerity measures.

Syriza’s charismatic leader, Alexis Tsipras, says he would reverse some of those policies and demand that international lenders write off some of Greece’s giant 318.6 billion euro debt – 85 percent of it owed to foreign governments and the IMF.

Yet the arrival of the radical leftist in power would not unleash the same panic now that it would have done in June 2012, when Syriza appeared on the brink of a breakthrough.

Early elections will be triggered if Samaras is unable to find 180 lawmakers to elect a new president next February. His coalition has 155 deputies and none of the 23 independent deputies sided with him in the confidence vote.

Trailing Syriza by four to 11 points in opinion polls, Samaras’ conservative New Democracy party hopes to cast off the stigma of intrusive supervision by the European Commission, the European Central Bank and the International Monetary Fund at the end of the year.

Samaras is willing to forego the last 12 billion euros of IMF funds due in 2015-16 to escape quarterly review visits by the troika of official creditors. Instead, he aims to borrow some of the money on the markets and is expected to tap a fund set aside for bank rescues.

However, the IMF, the EU and paymaster Germany are keen to keep Athens under surveillance with a precautionary credit line as a safety net to underpin a return to market funding.

IMF chief Christine Lagarde said last week Greece’s outlook had improved considerably but the country would be «in a better position» if it had precautionary support and a continuing relationship with the global lender.

It is set to run a primary budget surplus before interest payments for the second successive year in 2014 and is finally seeing a timid return of growth after six years of severe recession that shrank the economy by one-quarter since 2008.


But with unemployment still at more than 26 percent, and twice that level among young people, most Greeks have not felt any benefit from the feeble recovery so far. Anger and protest have turned to resignation, and in some cases to despair.

The country has been scarred by a rash of public suicides at national landmarks, including people throwing themselves off the sheer cliffs lining the Corinth canal and killing themselves in Athens’ central Syntagma square.

International lenders led by Germany are keen to help Samaras survive in government as long as possible to avert the risk of turbulence under a Syriza-led administration.

If his coalition with the remains of the once mighty center-left Pasok party runs its full term, it could hang on until June 2016, by which time recovery might be more tangible for voters.

But Berlin has put out discreet feelers to Tsipras in hopes of moderating the one-time firebrand if he does come to power.

Deputy Labour Minister Joerg Asmussen, a former ECB executive board member, has met Tsipras at least three times, and the opposition leader has also met Finance Minister Wolfgang Schaeuble and ECB President Mario Draghi.

“The Germans still support Samaras and (Pasok deputy Prime Minister Evangelos) Venizelos, but they are exploring Plan B options too,» said Jens Bastian, a German economist in Athens and former member of the European Commission task force giving Greece technical assistance in implementing reforms.

A senior source in Berlin said it was «important to know what the opposition thinks» because they may enter government.

Syriza has behaved mostly pragmatically in office since it won many municipal elections this year.

Rena Dourou was the first radical leftist to be elected governor of the greater Athens region, Attica, after campaigning to ease the pain of recession and improve living standards.

Behind her leftist rhetoric, she has acted with moderation and not blocked implementation of reforms prescribed by foreign lenders.

Despite Tsipras’ demands, EU officials insist Greece does not need a debt write-off, which would be politically explosive in creditor countries like Germany, the Netherlands and Finland.

Private bondholders took major losses in 2012, so any additional debt relief would likely involve a further extension of repayment deadlines on official debt, the officials say.

While the IMF has to be repaid within 10 years, the average maturity on European loans to Athens is already 32 years, with a 10-year stay on interest payments at a rate of just 1.5 percent.

Greece’s debt service costs are lower now than before the crisis even though its debt mountain has swelled to 178 percent of national output – far above the 124 percent which the troika defined as a sustainable level by 2020.

“Greece doesn’t have a debt overhang,» a senior EU finance official said. «And the beauty of the system we have created is that it doesn’t cost taxpayers any money.”

Miranda Xafa, an expert on Greek debt and former member of the IMF’s executive board, said Athens would need to raise 10 billion euros in the bond market next year, which may not be so easy if there is political uncertainty.

That assumes it will be able to access all of the 11 billion euros reserve in the Hellenic Financial Stability Fund set aside to recapitalize banks, depending on the outcome of the ECB’s review of banks balance sheets to be published on Oct. 26.

“I don’t think either the IMF or the European Commission is likely to let Greece have a ‘clean exit’ like Ireland or Portugal,» Xafa said.


Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.