Don’t waste the crisis


Barack Obama’s former chief of staff, Rahm Emanuel, once said that one should never waste a serious crisis. Alexis Tsipras should take this advice to heart.

Now that the Greek prime minister’s SYRIZA party is splitting after he signed up to tough but necessary reforms, he has an opportunity to press the reset button. He can form a credible and stable new government, get relations with the country’s eurozone creditors onto a constructive footing and turn the economy around.

Such a transformation will, admittedly, be psychologically difficult. Tsipras is a left-winger attached to a bankrupt ideology.

On the other hand, he has now pretty much burnt his bridges with his more radical colleagues. There’s no longer any point trying to put his party’s interests above those of his country.

Although Tsipras cannot maintain party discipline, he may cling to the hope that he doesn’t need to share power. He seems to be tempted to reshuffle his cabinet and hobble along with informal support from the three pro-European opposition parties – New Democracy, To Potami and PASOK.

But Greece’s creditors would have little confidence in such an unstable arrangement. This matters because Athens still has many important things to negotiate with the eurozone – including its fiscal targets and the nature of any debt relief.

Now that the International Monetary Fund is becoming more insistent that Greece’s debt burden must be cut sharply, Tsipras has an important ally on this issue. But the less the creditors trust him, the tougher they will be.

Investors and depositors would also be worried that a minority government might collapse at any moment. It would therefore be hard to get the economy growing again and, without that, Tsipras and Greece would be doomed to failure.

The prime minister might, therefore, try to get back his majority by kicking the rebels out of SYRIZA and calling new elections. He couldn’t do this immediately as he first needs to push a series of reforms through the Greek Parliament. He then needs to agree a detailed new bailout plan with the eurozone and the International Monetary Fund. In practice, this means an election couldn’t be held before mid-September.

Tsipras might win such elections and be able to form a stable new government. The snag is that it still might not be credible. With a few exceptions, the prime minister has failed to find many capable ministers from his party. If Tsipras fails to create a government that is able to implement the new bailout plan, he will limp along from crisis to crisis and again fail.

The better option is to form a national unity government supported by the reliable elements of SYRIZA and the three pro-European opposition parties. This would have the support of around two-thirds of parliamentarians.

Tsipras should stay prime minister – not just because he has been elected but also because he is still, despite his failings, extremely effective at selling ideas to the Greek people. But the other ministers would be chosen from all the parties supporting the coalition, with a strong emphasis on individuals who are determined to deliver.

If Tsipras offered the pro-European parties such a deal, they would be hard-pressed to turn it down. Even if some were worried that joining a government which would implement tough measures would harm their future electoral prospects, they would have a moral responsibility to take part.

That said, the opposition parties could set reasonable conditions to their participation. They could, for example, insist on the government being a genuine partnership rather than Tsipras just offering them a smattering of posts. After all, the opposition would be providing about half the government’s parliamentary strength.

They should also ask Tsipras to commit to a three-year deal to coincide with the program Athens is negotiating. By the end of the program, the economy should be growing again, the creditors should have agreed to lighten Greece’s debt burden and the government should be able to fund itself again through the markets.

But this rosy scenario is only possible if Greece implements the program properly. If the political parties bicker among themselves and the national unity government collapses, the program will again fail. Hence, the importance of a three-year commitment.

But wouldn’t such a commitment be easily torn up? And, in any case, wouldn’t such a government be vulnerable to the accusation that it lacked legitimacy?

After all, the Greek people voted in a referendum earlier this month by a 61-to-39 percent majority against a program that is less harsh than the one Tsipras has now agreed. As the austerity bit, the government would be attacked mercilessly by both far-left and far-right parties for flouting the people’s wishes.

This is why a national unity government should secure a new mandate by holding a second referendum. Such a plebiscite should be asked to approve not only the program but a three-year coalition to implement it. This would raise the political costs for any party that tried to pull out prematurely.

A second referendum would probably produce a different result from the first one because Tsipras would be using his immense rhetorical skills to secure a “yes” vote this time.

The question would also make clear that “no” meant exiting the euro, something the Greek people don’t want. 

So there is a path, which could turn crisis into recovery. That, of course, is not the same as saying Tsipras will take it.

* Hugo Dixon is a market analyst and founder of Breakingviews.