Now for the real test of Tsipras’s political clout in Greece

Now for the real test of Tsipras’s political clout in Greece

After two elections, one referendum and countless bruising encounters with European creditors, the hard work is only just beginning for Greek Prime Minister Alexis Tsipras.

The new government in Athens, named late on Tuesday, will have to immediately start implementing a wide slate of politically toxic austerity measures that will test its cohesion and could result in yet another election if enough lawmakers waver. The steps required range from ending tax refunds for farmers to slashing fuel subsidies, all relying on a parliamentary majority of just five seats.

The first international review of Greece’s progress in meeting the criteria for its 86 billion-euro ($96 billion) bailout is due next month. Without a positive verdict, payments can’t flow and Europe’s most indebted country risks an even deeper economic crisis after losing a quarter of its gross domestic product in six years.

"There’s a lot on the government’s plate to implement if it’s going to meet all those deadlines," said Ben May, an economist at Oxford Economics Ltd. in London. "The real concern is that the conditions of the bailout are still very onerous and would be a real challenge for any Greek government to implement in full."

Election triumph

Tsipras’s Coalition of the Radical Left, or SYRIZA, won a decisive victory in general elections on Sunday, defying opinion polls to take 35.5 percent of the vote compared with about 28 percent for center-right rival New Democracy. To gain a majority of seats, the 41-year-old re-entered a coalition with the nationalist Independent Greeks party.

The cabinet he named to carry out reforms – more than 100 are due by the end of December – includes some familiar faces. Euclid Tsakalotos, brought in to secure the deal with creditors after a six-month standoff, returns as finance minister. He is joined by deputy Giorgos Houliarakis, who took the post on an interim basis in the run-up to the election.

Two once-key allies, former Energy Minister Panayiotis Lafazanis and parliamentary speaker Zoe Constantopoulou, are absent. They were part of a group of SYRIZA lawmakers that broke ranks over the July bailout deal, and now support a new faction called Popular Unity that advocates returning Greece to the drachma. Their departure in August forced new elections, but the splinter party didn’t meet the threshold to enter parliament.

At least five SYRIZA lawmakers who abstained in votes on the bailout agreement in July and August, leaving the premier reliant on opposition support, were re-elected on Tsipras’s ticket on Sunday.

Case by case

The willingness of opposition New Democracy to support austerity measures is also uncertain. While the party will be backing reform measures that "contribute to the country’s economic recovery," it will decide on fiscal and tax measures on a case-by-case basis, spokesman Kostas Karagounis said.

The laundry list of austerity measures Tsipras and his lieutenants will have to drive through Greece’s 300-seat parliament would give pause to any government, let alone one led by a party that first came to power pledging to stand up to the demands of creditors for more spending cuts and tax hikes.

Greece must present a fiscal strategy for 2016 to 2019 that would achieve a budget surplus of 3.5 percent of gross domestic product before interest payments, compared with a 0.25 percent deficit this year. Heating oil subsidies are to be slashed in half, levies increased on income from rents, and the number of military personnel reduced in the NATO country.

Farmers, who in the past have resorted to blocking highways with tractors to protest legislation that would erode privileges, are a particular target. A refund scheme that allows them to claim back excise tax on diesel fuel is to be abolished, and a lower rate of income tax must be phased out. They will also have to pay more into their pensions in exchange for benefits that are targeted for reduction nationwide.

Same coalition

The composition of Tsipras’s majority may become an issue in passing the legislation and makes some observers question his commitment to doing so.

The Independent Greeks party opposes aspects of the agreement Tsipras struck with European creditors in July. Tsipras chose to renew the alliance instead of pursuing talks with the centrist To Potami, and center-left PASOK, which support the aid accord.

The premier handed the Defense Ministry back to Panos Kammenos, leader of the Independent Greeks, and the party also has positions responsible for tourism and the region of Macedonia and Thrace in the north of Greece.

"In our view this coalition will embrace ownership of the bailout program to a lesser extent" than an alliance with other parties would have, Royal Bank of Scotland analysts led by Michael Michaelides said in a note to clients on Monday. As a result, "bailout implementation will likely proceed only sporadically," they wrote.

Under scrutiny

An even tougher test of Tsipras’s commitment to the bailout deal will come early next year. A second assessment of progress is planned for the spring, with an important difference: instead of reviewing the Greek Parliament’s record in passing legislation, it will try to determine whether reforms are actually being implemented on the ground.

Getting government staffers to change practices in problem areas like tax collection bedeviled previous Greek leaders and isn’t likely to prove any easier for SYRIZA, which gets much of its support from public employees. Figures show tax revenue remains below target this year.

It’s a tall order, though perhaps one within the abilities of Tsipras, who won re-election despite a dramatic U-turn on the anti-austerity platform that swept him to power first in January and upended the political establishment in Greece.

The prime minister "is leading a ‘supermarket’ party, willing to sell any measures necessary,” said Theodore Pelagidis, a senior fellow at the Washington-based Brookings Institution. Other parties also are unlikely to block legislation if Greece’s place in the euro looks in jeopardy, he said. “Tsipras is a salesman.”


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