Greece’s left-wing government meets eurozone reality

Brussels, Belgium – In early January 1991, a 17-year-old Alexis Tsipras woke up inside his high school and began another day as one of the central leaders of a nationwide student movement that had rolled on for months against government spending cuts to the education sector.

He became one of the main negotiators with then education minister Vasileos Konitogiannopoulos, insisting on the total eradication of his reform proposals that included an end to free text books for students. It took three months of persistence and the death of a teacher during violent clashes with opposition groups, but in the end Tsipras got his way.

The reforms were axed and the education minister resigned.

Today, Greece’s newly elected and boyishly charming new prime minister is back at it again.

After winning the national election in Greece on the back of an anti-austerity campaign that underlined the lack of democratic scrutiny in how the country was bailed out at the cost of 240 billion euros ($273bn), Tsipras is now questioning the cohesiveness of the eurozone and pushing for a clean break from the old regime of steep spending cuts.

It wants its current rescue programme to come to a close at the end of February, and for new terms to be negotiated with its European partners.

It is also asking that the European Central Bank (ECB) provide Athens with unconditional liquidity to its banking sector while the two sides embark on discussions aimed at brokering a new deal.

But with Germany and most other member states staunchly against Greece’s pledge to roll back years of tough reforms – measures including the privatisation of a host of state-owned entities, wage cuts and the opening up of the healthcare system to outside competition – Greece and its new firebrand government is finding itself having to choose between the wishes of its people, and the ability to adhere to rules required to remain part of the euro area.

‘Serious problem’

“Syriza has no alternative. When you start looking at the numbers in terms of bank deposits leaving the country, if that continues for very long it’s going to be a very serious problem,” said Graham Bishop, a consultant on European integration based in the UK who has helped the European Commission with legislation on how to develop a common euro-denominated treasury bill.

“As soon as you break the egg of confidence, you can’t put him back together again.”

According to Bishop, even though Greece’s Finance Minister Yanis, a keen blogger, has stepped back from asking for an outright write-off of its towering levels of debt – another pre-election pledge – too much muscle-flexing against the country’s bailout programme could also end up backfiring.

“If you’re a professor of macroeconomics and a renowned blogger, you probably don’t understand precisely how the banking systems works,” Bishop said, referring to Varoufakis, who until 10 days ago was more inclined to a world of academia and book writing.

The time for crisis-denial, retribution and finger-pointing is over; that the time for the reinvigoration of the ideals of freedom, rationality, democratic process and justice has come in the continent that invented them.

by Yanis Varoufakis, Finance Minister

All eyes now turn to a meeting on Thursday between Varoufakis and his German counterpart Wolfgang Schaeuble, the euro area’s most powerful finance minister. Euro area ministers are also likely to gather for an emergency meeting next week in Brussels to further discuss Greece’s position in the region.

Giving firepower to the newly elected Syriza party in Greece is an overwhelming electoral mandate to put an end to the harsh austerity measures imposed by authorities in Brussels.

Not so radical

More than 25 billion euros ($28.4bn) has reportedly been withdrawn from Greek banks both before and after the elections. The government also owes 2.6 billion euros ($2.96bn) to the ECB in June when bonds expire, followed by a further 8.7 billion euros ($9.9bn) throughout July and August.

With that in mind, Greece could still default on its debt, especially if the government in Athens continues to insist on a new financial aid programme with more favourable conditions.

“I think that everyone will be very tough on this,” said an official of the EURO Working Group that prepares the agenda for the eurozone finance ministers, referring to demands to reduce austerity and end the pace of reforms.

“There would have to be very favourable scenarios for this to be granted, including a credible plan to consolidate Greek debt,” said the official, who requested anonymity because he wasn’t authorised to speak to the press.

Massive outflows

Still, for many looking at Greece – names that include prominent economists and Nobel prize-winners Joseph Stiglitz and Christopher Pissarides – Europe simply has to give something back to Athens.

There is “a necessity of adjusting the negotiating position”, said Kevin Featherstone, a professor of Contemporary Greek Studies at the London School of Economics.

Yet he noted with such strong domestic support in Greece for remaining part of the eurozone, the radical nature of Greece’s newly elected left wing party had wavered in only the first week of being in government. Athens earlier this week stepped back from asking for a cancellation of more than 50 percent of its debt and Prime Minister Alexis Tsipras said he would “respect the rules of the European Union” during a press conference in Brussels on Wednesday.

“Clearly the negotiating position is nowhere near as radical as we heard very often during the election campaign,” Featherstone said.

While adhering to his radical nature in public, Varoufakis, Greece’s finance minister, is also described by his peers as being succinctly aware of the constraints and risks that currently face Greece. 

“He is a very able economist. He’s also a very original thinker. I think he is putting his mind to trying to find innovative solutions. But he also is a well-trained enough economist to understand some of these constraints.

“We’ve known since December that there have been massive outflows of capital from Greek banks,” Featherstone said.