The next couple of weeks are crucial for Greece, as the prime minister will have to sit down with the representatives of the European Union, the European Central Bank and the International Monetary Fund to negotiate a new memorandum that will ensure the country?s funding over the next two years.
There are three major thorns in this negotiation: demands for the closure of state organizations, which will involve people being fired; the insistence of providing collateral in return for any new loans, and the existing, painful reforms for 2011.
The government needs to read the troika?s red lines carefully and to put up a fight in order to win over the public on the domestic front, but ultimately it will end up with a new memorandum.
Meanwhile, another significant negotiation is unfolding that promises incredible complications, and this is over a ?Vienna 2? agreement that will convince our lenders to extend the maturities of bonds that have to be paid out on within the next two years.
For these two negotiations to succeed — for Greece to get the funding package and to restructure its debt — George Papandreou will need to accept a series of painful measures and push them through Parliament. The path of the negotiations is strewn with land mines, however. For one, the mood toward Greece in some European governments is very negative and we cannot know what they may ask of Athens in exchange for more assistance. Also, there is a sense that the troika will insist on ensuring the support of opposition leader Antonis Samaras before it agrees to anything new.
The next potential obstacle comes from within the ruling PASOK party where there are certain members who are like hair-triggers and may go off if they see a single employee fired from a state-owned company, as well as others who are only just beginning to realize that they are in the wrong job. Which of them will go off and how remains to be seen.
Meanwhile, all of this is happening on a backdrop of incredible social instability and tension. Over the next few days we will inevitably see more protests, more blockades on highways and at ports. The country will look like it is on the verge of being ungovernable. Banks are also at breaking point, while people are getting desperate and don?t know where to reach out for a lifeline. The government has lost its credibility and now, because it took so long to take any real decisions, it is at risk of having to face a tsunami of public discontent that will be deaf to any appeals.
The smoothest scenario would be for the government to seal a deal without having to commit to humiliating terms such as providing state assets as collateral, for Parliament to approve the deal immediately and for Papandreou to form a new government consisting of fighters who are determined to get the reform and privatization programs off the ground whatever the cost. In this best-case scenario, Samaras will back Papandreou on the most important issues, he will stop slamming the memorandum and he will co-manage the privatization process along with his closest and most trustworthy aides.
In this scenario, Greece will step back from the ledge and get onto a path that may lead it back to growth. Samaras will also be able to expect to see the benefits of his stance in the next general elections.
Everyone knows that the situation is serious and depends on a lot, from political developments in some small part of Germany to whether or not the mass rallies expected in Athens will turn violent. Yet there is something in this strange equation that gives hope. First of all, the maturity shown by the Greek people despite their anger and rage, and, secondly, the fact that we have the backing of Americans and Europeans who don?t want to see Greece perish as it would harm their interests. This, of course, does not mean that they will be able to stop us from committing suicide if that is what we decide to ultimately do.