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By Dr. Jim Leontiades
Cyprus International Institute of Management
For the first time, a member of the Euro countries receiving financial aid from the Euro group has openly challenged the conditions it had agreed to. Alexis Tsipras, the new prime minister of Greece, has refused even talk to the Troika technocrats implementing the Greek bail out. His challenge brings into question not only the Greek bail out programme but even the power and methods of the Euro group, its governing body.
For the Euro group, Mr. Tsipras’ initial demands appear outrageous. Not only does he challenge the financial conditions Greece agreed to, he has also taken action to stop and reverse promises made by the previous Greek government to restructure the Greek economy. Tsipras announced before and after his election his intent to stop privatisation, increase pensions, increase the minimum wage and raise the number of workers in public sector. These measures would halt and reverse the restructuring measures which the Euro group believes are necessary to make countries receiving its financial assistance competitive once again. Otherwise, what is to prevent them from requiring more financial assistance in the future?
Of course, the money owed by Greece to its creditors is also important. The Euro group politicians who have agreed to the Greek loans are ultimately accountable to their electorate. Can the leaders of France, Germany, etc., really return to their constituencies and say that the money (their tax money) that they loaned to Greece will not be repaid in full?
From the Greek point of view, endless austerity was not why they had joined the group. Austerity has proved a failure. No country can be expected to endure financial misery and unemployment levels of 26% year after year with the so little evidence of improvement.
FUTURE NEGOTIATIONS
The stage is set for a momentous head to head encounter. We have here a clash not only of issues but also generations, cultures and styles. One can’t help sympathising with the charismatic young leader of Syriza. Youth confronts the grumpy priests of austerity which comprise the Eurogroup. Even Syriza’s newly appointed ministers give the appearance of students who have overstayed their time at university.
The Euro group will likely offer some limited accommodation regarding the payment schedule for their loans to Greece, extending and softening the terms of repayment. But there is likely to be little or no flexibility on the essence of the “restructuring” part of the programme. Allowing Tsipras’ party to abandon these measures would strike at the very philosophy underlying such change. It is not just a question of competitiveness but of developing a Eurozone comprised of countries that are “European” in outlook and economic development.
In their future negotiations, the Euro group will be careful not to play the role of the big bully pressuring little Greece. They don’t need to. In a matter of months, Greece will need additional funds to pay the pensioners, public servants and others who voted for Tsipras. Greece is effectively shut out of international financial markets. Money is flowing out of Greek banks. Eleven billion Euros of deposits is estimated by some to have left Greek banks just in January seeking safe havens.
The European Central Bank, as the sole remaining source of funds, controls the financial lifeline of the Greek government. It has only to gradually and gently to reduce payments to implement a financial squeeze that the new Greek government would find it hard to resist. If Tsipras has a plan for finding the necessary funds and avoiding such a financial squeeze it is not evident.
OUR OWN POLITICIANS
Our own politicians have not been slow to latch on to the Tsipras bandwagon. Even before the Greek elections, there have been long standing demands by a number of Cypriot political parties to reject the troika and its demands. As with Tsipras, these parties have been much less specific on what would happen if, in response, the European Central Bank cuts off the financial flow of funds it supplies to Cyprus.
Where would Cyprus find the money to finance government spending for the public sector workers, military, hospitals, etc.? Few (as in nil) answers have been forthcoming. These politicians will be eagerly watching to see if Tsipras has arrived at some magic formula that everyone else has overlooked. Some insight as to what his strategy might be will be provided by developments in Greece over the next few months. These will be watched carefully. The stakes are high. A Grexit would be a disaster for both sides. We are in for an interesting time.
