Greece could stumble out of the euro by accident if a new government fails to reach an agreement with international creditors soon after this month’s election, Finance Minister Gikas Hardouvelis said.
The main challenge facing whichever government emerges from the January 25 vote will be to close the stalled review of Greek progress in meeting the terms of its financial rescue by the euro area and International Monetary Fund, he said. If that government is led by SYRIZA, it would be “prudent” to reverse its stance and negotiate an extension to the bailout before the aid supporting Greece expires on February 28, Hardouvelis said.
The prospect of “leaving the euro area is not necessarily a bluff,” Hardouvelis, 59, said in a Bloomberg Television interview in Athens on Wednesday. “An accident could happen, and the whole idea is to avoid it.”
Opinion polls show the opposition SYRIZA party of Alexis Tsipras with a slim though consistent lead over Prime Minister Antonis Samaras’s New Democracy. Tsipras has said he’ll roll back the austerity measures tied to the bailout and seek a write down on some Greek debt, putting him on a collision course with the so-called troika of creditors including the European Central Bank, which have kept the country afloat with 240 billion euros ($284 billion) of loans pledged since 2010.
Tsipras’s commitment to keep the country in the euro area hasn’t stopped New Democracy from stoking concerns during the campaign that a SYRIZA victory could force Greece out of the currency bloc. The yield on Greece’s benchmark 10-year bond, which breached the 10-percent mark for the first time in 15 months last week, fell the most since October on Wednesday, suggesting investor perceptions of Syriza may be shifting.
It’s hard to say when precisely crunch time would be for Greece if the next aid tranche is delayed, said Hardouvelis, a Harvard-educated economist who was appointed to the Finance Ministry in June last year.
“However, muddling through has negative consequences on the economy, and it may affect revenues,” he said. “So the earlier you clarify the uncertainty, the better off for everybody.”
Hardouvelis, who is neither a New Democracy member nor even a lawmaker, was an adviser to then-Prime Minister Lucas Papademos in 2012, when Greece persuaded its private creditors to accept about 100 billion euros of losses, the biggest debt restructuring in history.
Since the Greek elections of that year, he said, the euro area has put defenses in place against a country leaving the single currency now shared by 19 members, meaning the prospect of exit can no longer be used as a bargaining chip in negotiations by any government.
“SYRIZA has to abide by the commitments that Greece has signed up to,” he said. “All major political parties have announced their intention to keep the country in the euro area, so I assume their policies will become consistent with that target. How soon they become consistent is another question.”
Hardouvelis, who was the chief economist at Eurobank Ergasias in Athens before his appointment as minister, said that tax-revenue collection has slowed as a result of the electoral uncertainty.
Greece’s 2014 primary budget surplus will be about 1.5 percent of gross domestic product as a result, he said. While that’s in line with bailout targets because of cushions built into the program, the surplus is down from an earlier government forecast of 1.8 percent.
The outflow of bank deposits in December, which were down about 3 billion euros, continued into the start of January, though “everything’s under control,” Hardouvelis said.
The writedown SYRIZA is seeking on Greece’s debts is politically unacceptable to its creditors, he said. Instead, “breathing space” could come from further extending the duration of the loans, and taking advantage of liquidity conditions by transforming floating-rate loans to fixed rate, he said.
“Responsibility transforms whoever runs the country, and I assume that rationality will eventually prevail,” he said of the looming election in less than two weeks. “The question is Greece doesn’t have much time.”