ECONOMY

Could 2015 bring another bailout loan?

Some say history does not repeat itself, but others, like Nietzsche, disagree. By choosing to seek the election of a new president by Parliament in February 2015 rather than early elections, as former conservative Premier Costas Karamanlis did in 2009 when he faced a similar dilemma, Prime Minister Antonis Samaras chose to prove historical recurrence is not common. But the coalition government’s unwillingness since last May to pursue some reforms aggressively and the lenders’ strict adherence to the terms of the bailout program seem to have increased the chances for a historical repetition, meaning a new bailout loan.

The 2014-15 period seems to share some similarities with the 2009-10 era but there are more differences. One of the similarities is the political dilemma faced by Karamanlis then and Samaras now. The main opposition PASOK party won the elections for the European Parliament in June 2009 by a comfortable margin of 4.4 points, with the ruling conservative New Democracy coming second, prompting the government to breathe a sign of relief because the margin was not bigger.

In May 2014, the main leftist opposition SYRIZA party won the elections for the European Parliament with 26.6 percent of the vote, while New Democracy got 22.7 percent. Junior government partner PASOK joined the Olive Tree alliance, which got 8.02 percent of the vote. Once again the two-party government was relieved because the outcome could have been worse.

In both cases, the main opposition leader, then PASOK’s George Papandreou and now SYRIZA’s Alexis Tsipras, vowed not to vote for a consensus candidate to be the next president of Greece in the first months of the year ahead and demanded early elections to topple the ruling government, claiming it was ineffective. Back in 2009, Karamanlis, facing a deteriorating economy, an informal so-called “white strike” by public sector employees and sensing the need for painful reforms, sought a new mandate via early general elections in early October 2009. Pundits say Karamanlis faced three options in 2009. First, to hold general elections in June 2009 or even earlier. Second, to seek elections in the fall after the summer when people returned back from vacation and would supposedly be in a better mood. Third, to try to stay in power for as long as possible.

Karamanlis lost by a landslide to PASOK’s Papandreou, who campaigned on the slogan “There is money,” and Greece found itself in a bailout program in May 2010. At the time, prominent conservative politicians, among them Samaras, objected to the idea of seeking early elections, formally scheduled for the fall of 2011. They argued the government should proceed with the reforms, ignore the political cost, and go down fighting in February-March 2010 when the vote for the president would have taken place if that were the case.

Although the political landscape and the economic situation are different nowadays compared to 2009-10, Premier Samaras faced a similar dilemma this year but chose a different path, which is consistent with his 2009 view. He decided to pick up the gauntlet thrown down by Tsipras and try instead to get a supposedly moderate, respected candidate elected for president when the vote takes place in Parliament in February 2015.

In doing so, he counted on an improving economy and the country’s emergence from a six-year recession on the back of a strong tourism season and a modest rebound in investment spending. Perhaps, even more important, he counted on Greece’s exiting the unpopular bailout program at end-2014 and kicking out the IMF to improve the conservatives’ standing in opinion polls and help gather the minimum 180 votes in the 300-seat Parliament to elect a president and avoid early elections.

But the idea of presenting an attractive package to Parliament in February, comprising a post-bailout program with lighter surveillance and a precautionary credit line as well as debt relief measures, to help elect a president is clearly at risk now, following the recent Eurogroup. Eurozone finance ministers want Greece to complete the last review of the bailout program by implementing the agreed upon reforms before coming to an accord on the stricter precautionary credit line (ECCL), with the debt relief action promised back in November 2012 up in the air.

So, it looks as if the coalition government has a tough task ahead, meaning to agree with the lenders on most prior actions and have the last review completed to move on. At this point, its best choice is to reach an agreement on most pending items in the review but not to fully legislate them, to avoid any nasty surprises in Parliament, and have its lenders agree to the package of a post-bailout program with a safety net and some debt relief measures to be presented to lawmakers and help avoid early elections in 2015.

However, this kind of deal cannot be taken for granted. Moreover, even if there is a deal, it may not suffice for this Parliament to elect a president. With Greece being unable to access the markets for medium-term funding at reasonable yields, all bets are off, meaning even a precautionary credit line from the European Stability Mechanism (ESM) may turn out to be a credit line with conditionality attached. Therefore, history may repeat itself and 2015 be marked by another bailout loan, just like 2010.