Talks with troika the main test

The left-wing SYRIZA party’s triumph in the Greek national elections sends a strong message across the eurozone that excessive austerity will have political and social repercussions if pursued for a long time. But SYRIZA will have a tough task convincing the country’s official lenders to continue funding and adopt its policy proposals, many of which are at odds with the current adjustment program. A compromise seems to be the best solution, but requires concessions from both sides. Whether this is possible remains to be seen.

The outcome of the general elections represents a triumph for SYRIZA and its charismatic leader Alexis Tsipras, who campaigned on a message of hope and an end to austerity. It is a victory of the anti-austerity forces against the policies of economic orthodoxy pursued by the conservative New Democracy party and Premier Antonis Samaras, who chose to campaign on a message of fear if SYRIZA won the elections. One may also say it is a victory of the forces who oppose a good deal of the structural reforms cited in the economic program designed by the European Commission, the ECB and the IMF.

Regardless of the election outcome, its symbolism and the potential to help change the political landscape and policies in other southern eurozone countries, as some high-level SYRIZA officials think, there is something which cannot change. Greece needs official sector funding of between 6 and 15 billion euros, depending on economic assumptions, to meet its obligations in 2015. If it does not get this money, the country will not be able to pay maturing loans of 8.6 billion euros to the IMF and about 7 billion to the ECB for expiring bonds. This means it will default.

Tsipras and other high-level SYRIZA officials have said they will repay the IMF loans, of which about 2.1 billion euros mature in February and March. Greece’s total obligations, including interest, to the IMF and others amount to a bit more than 4 billion euros in the next two months. This is not a small amount for a country facing a gradual liquidity squeeze. Greek bonds of about 6.6 billion euros in total held by the Eurosystem expire in July and August.

Of course, SYRIZA has said in the past it plans to issue T-bills and have the Greek banks buy them to get state funding. But this depends on the good will of the ECB and the European Union. Greece can borrow as much as 15 billion euros annually by issuing T-bills under the existing agreement. So lifting the upper limit to, let’s say, 20 billion euros will likely require the new SYRIZA government to ask for an extension of the adjustment program which ends on February 28, and perhaps some other concessions.

The extension of the program will likely be the first major test for the new government since SYRIZA has repeatedly said it wants to do away with the adjustment program. On the other hand, the EU has made it clear the new government will have to ask for such an extension to be granted. Whether a middle ground can be found between the two sides for face-saving purposes remains to be seen. The extension is important for the ECB to continue to provide cash to local banks to replace deposit withdrawals and an unwanted contraction of the economy be avoided.

But the most important issue on the new government’s agenda will be the negotiations with the lenders. In his last interview with Greek TV stations last Friday, Tsipras said that he does not recognize the troika, the representatives of the European Commission, the ECB and the IMF. Other SYRIZA officials have said they do not want to negotiate with the troika and do not intend to finish the pending review of the program. Instead they want holistic political negotiations on all matters, including the debt, with the official lenders.

So one wonders what will happen if the EU, the IMF, Germany and so on tell the Greeks to talk to the troika, even without the ECB’s participation? If SYRIZA sticks to its guns and the lenders do not yield, there will be no negotiations. If the new government decides to talk to the troika, the process will go on but one should expect reactions from within the party. Again, can a middle-ground solution be found so that negotiations begin and a standoff is avoided? It is hard to say. Nevertheless, it is clear there are a few issues to be resolved even before the Greek side and the representatives of the international lenders sit down at the same table.

Undoubtedly, the election outcome represents a triumph for SYRIZA and its leader, who has the opportunity to write history by both becoming the country’s first leftist prime minister and its reformer. But it will require a change of view on many issues for Tsipras to become Greece’s Lula. How he handles the extension of the existing program and the negotiations with the lenders will be the first litmus test.