Building up to the perfect storm

The fate of the current two-speed, two-message administration will largely depend on the relationship between the government and the country’s lenders. Prime Minister Antonis Samaras sees debt relief talks as the Holy Grail which he expects to take into his hands by about the end of the year. The troika has made it abundantly clear that in order to reach a debt relief deal, the government will have to come up with at least a new mini-social security reform package based on actuarial studies – supposed to be carried out this summer – and a restructuring of the public sector payroll.

In theory, negotiations should start in September and finish by the end of the year, so that whatever measures are agreed to are approved by Parliament before moving onto the debt issue. Could such measures make it through the House, past PASOK’s and New Democracy’s rebel MPs? Cynics believe they will because deputies will not risk losing their jobs to early elections. Others doubt it.

Some believe our European partners will have softened by the fall and not demand additional measures. They even support the theory that Europeans will buy out the IMF and put in the remaining 15 billion euros themselves. Those in the know in Berlin argue that although the German Chancellery is aware that the relationship between Greece and the IMF has soured, it is doubtful whether Germany would ever put up any money to get rid of the IMF and relax the Greek program.

The message coming from abroad is that there is an understanding of the political difficulties but no promises can be made for changes to policy. On the contrary, concerns that the program may be derailed by political developments are escalating.

A likely scenario is that Samaras will call snap polls in the fall and ask voters to elect the best debt negotiator. By then thousands of Greeks will have made some money thanks to the tourist season and recovery signs will be more visible. Another scenario is a fallout between the government and the troika or for the negotiation to go on for several months. In that case the government would have to resort to T-bills for funding and would be unable to cover state obligations on time. This would be a catastrophe for the economy but would allow the government to weigh opinion polls and the mood abroad. Nevertheless, the danger is visible. The fact that the inner circles are beginning to see fall elections as inevitable makes for a self-fulfilling prophecy: Ministers balk at decisions, the state comes to a halt, markets sense political instability and businesses go on stand-by. Add to this the danger of creditors adopting a tougher stance as they predict general relaxation and it’s pretty clear that we have all the elements for a perfect storm.