Samaras on offense as bailout 3.0 returns crisis focus to Greece

Greek Prime Minister Antonis Samaras has gone on the offensive at home and abroad, seeking leverage as the spotlight in Europe’s financial-crisis drama returns to the country where it began.

Cracking down on a nationalist party linked to a murder and telling Europe his budget cuts are ahead of target, Samaras wants more aid for a nation that has already been showered with 240 billion euros ($325 billion) in pledges. A meeting of euro finance ministers today in Luxembourg will signal how Europe will help Samaras, in office for 16 months, remain in power.

Mired in the sixth year of a recession that has driven unemployment to a record 28 percent, Samaras is positioning for a third bailout as he clings to a five-seat majority in the 300-member parliament.

“Samaras is under continuous pressure at home because of the high level of despair and anger among citizens,” Janis Emmanouilidis, director of studies at the European Policy Centre in Brussels and a regular visitor to Greece, said on Oct. 11 by phone. “He needs support from European partners and at the same time he needs to show Greeks that he’s a hard bargainer. In the current environment, no Greek government would feel strong and comfortable.”

After four years and 496 billion euros in pledges for five nations, euro-area policy makers are still grappling with the country that sparked the threat of the single currency’s breakup. While Greece angles for more handouts with its current program due to end in 2014, Ireland, Spain and Portugal are preparing to loosen their grip on the cash lifelines.

“It’s very likely that they will need more assistance,” Klaus Regling, managing director of the European Stability Mechanism, the euro rescue fund, said in an Oct. 10 interview with Bloomberg Television in Washington.

German Chancellor Angela Merkel, the dominant politician in Europe, has ruled out offering what Greece may need most: a write-off of official loans to help the country meet a target for public debt to fall to 124 percent of gross domestic product in 2020 from a peak of about 175 percent.

That has left officials holding out the prospect of more of the same relief that Greece won last November.

“The arsenal would be related to the extension of loan maturities and a further reduction of interest rates,” European Economic and Monetary Affairs Commissioner Olli Rehn said during an Oct. 10 panel discussion in Washington.

Samaras, Greece’s fourth prime minister in as many years, can play on two advantages that his predecessors during the crisis lacked: he expects a budget surplus excluding interest payments in 2013, a year ahead of schedule, and predicts economic expansion in 2014 for the first time since 2007. Ten-year bond yields have declined below 9 percent from about 18 percent a year ago.

The fiscal position is significant because finance ministers agreed last November to “consider further measures and assistance” once Greece achieves the surplus before interest costs — known as a primary surplus.

This fight will play out while Greece holds the EU’s rotating six-month presidency starting in January and the European Parliament holds elections in May. Both occasions will raise the political stakes for Samaras, whose New Democracy Party runs neck and neck in polls with the opposition Syriza.

Before any third rescue, a decision must be taken on filling a 2014 Greek financing gap estimated at 4.4 billion euros by the International Monetary Fund in July. That’s because the IMF, which is funding the Greek aid program along with the euro area, requires a 12-month guarantee of Greece’s financing to continue with its own lending.

Furthermore, the Greek government must still prove progress on aspects of its economic overhaul including state asset sales to win the release of a remaining 1 billion-euro tranche from a 5 billion-euro sum approved in July.

Samaras’s government has little domestic political margin to impose further austerity. Public disaffection in Greece has grown to the point that its democracy is under “severe strain,” according to British think tank Demos.

“It is now overwhelmed by extremely high unemployment, social unrest, endemic corruption and a severe disillusionment with the political establishment,” Demos said in a report this year for the European Parliament’s Socialist group.

This landscape helped fuel the rise of the nationalist Golden Dawn party, which has 18 lawmakers in the parliament and has come in as high as third in recent opinion polls.

Last month, Greek police said a Golden Dawn supporter confessed to the Sept. 18 killing of a 34-year-old man whom local media have described as an anti-fascist rapper. The party’s leader was arrested amid an investigation into its alleged criminal activity.

The obstacle course for Samaras risks producing replays of the tensions that have plagued Greece over the past four years.

George Papandreou, the Socialist premier who revealed in 2009 the deficit blowout that triggered the crisis, quit in 2011 after his call for a referendum backfired.

Two caretaker governments and an inconclusive election — along with the biggest debt restructuring ever — followed before the June 2012 vote that installed Samaras and an unprecedented three-party coalition. The smallest faction, Democratic Left, then quit over shutting down the state broadcaster amid European demands that Samaras cut the public payroll.

Progress on that front will feature in a current review by the European Commission, the European Central Bank and the IMF – – the so-called troika — of Greece’s adherence to the terms of the bailout.

“The overhaul of the public sector will probably yet again be at the center of negotiations,” Barclays Plc said in an Oct. 8 research note. “But with some positive growth in sight, the government will also want to reap political benefits and pressure the troika to relax the conditions after good results since mid-last year.”

[Bloomberg]