Greece's Syriza Confronts Reality

11 APR 2, 2015 10:15 AM EDT

By Leonid Bershidsky

Reality does depressing things to dreams. It kills them off quickly and mercilessly, and because people have short memories and dreams are short-lived, we often forget what they were like when they began. This is why it's worthwhile to compare Greece's first "full summary" of reforms, released today, to be undertaken so the country can unlock financing from international creditors, with the election program that the ruling Syriza party announced last September.

In the initial plan -- the so-called Thessaloniki program -- Syriza leader Alexis Tsipras, still four months from becoming prime minister, promised a bold strategy consisting of four "pillars":

confronting the humanitarian crisis;

restarting the economy and promoting tax justice;

regaining employment;

transforming the political system to deepen democracy.

The first pillar contained measures costing a total of 1.882 billion euros (yes, it was calculated with that kind of professional-looking precision). It included free electricity for households below the poverty line; rent, meal, transportation and medical care subsidies for the poor; and the reintroduction of the "Christmas bonus" for 1.3 million retirees with low pensions. The current reform program abandons most of these measures, clinging only to the Christmas bonus at a cost of 600 million euros, and asking for another 152 million for two other technical adjustments to pension legislation not mentioned in the original program. Free meals and energy are off the table.

The second pillar of Syriza's campaign platform was all about alleviating tax pressure on the middle class. Tsipras proposed replacing Greece's universal property tax with a levy on big properties only, at a cost to the government of 2 billion euros a year. Other ideas included bringing back the 12,000 euro annual income tax threshold (at a cost of 1.5 billion euros per year) and allowing people to pay their tax debts in installments (benefit of 3 billion euros in the first year). The last two proposals remain in the Greek government's current proposal, but the numbers attached to them are much smaller. The reintroduction of an income tax threshold and changes to the number of brackets are supposed to cost 300 to 400 million euros in 2015 and 400 million per year onwards. Those exact amounts are supposed to be recouped through the installment scheme, allowing some of Greece's 3.5 million insolvent taxpayers to start paying down their debts.

Last year, Tsipras vowed to restore collective bargaining agreements and make people harder to fire. He promised an employment program to create 300,000 jobs, worth 3 billion euros the first year. The first promise is there in the current government program, but formulated so as not to alarm the creditors: Greece is about to "include establishing minimum employment terms" through a national collective labor agreement and start working to increase the minimum wage (with a "negligible" fiscal impact). The massive job creation program is gone.

The political pillar, consisting of nebulous measures to enhance the Greek democracy, was supposed to be fiscally neutral, so it's not part of Greece's discussion with its creditors.

The Thessaloniki program was based on a Syriza government's ability to negotiate a partial debt write-off, a temporary moratorium on debt servicing and a link between economic growth and debt service. But the European Union, the European Central Bank and the International Monetary Fund have not agreed to those things, and Greece has had to accept a continuation of the current bailout program, with the creditors periodically reviewing the progress of reforms. Tsipras entered the negotiation unable to walk away from the table, and that quickly eroded his bargaining power. That was the first reality check.

Back when Tsipras made his bold election promises, he did not foresee having to act under extreme financial constraints, with funding about to run out almost every day. His government has had to raid social security funds to pay pensions and salaries, and bank runs have made Greece's banking sector desperate for more ECB assistance.

The second reality check must have been domestic: The shock of finding out how things really stood from a government's prospective. Like any opposition party in a badly managed, non-transparent country, Syriza had only an approximate idea of the costs and benefits of its proposed measures -- or, indeed, of why previous governments hadn't done all these nice, kind, sensible things for the Greek people. It turns out it wasn't because those governments were just evil and criminal.

Tsipras's administration has produced its reform program only after two months of incessant nagging from the euro area's finance ministers for more details and quantitative goals. The government needed time to figure out what it could realistically do. While the Thessaloniki program had everything added up to the last thousand euros, the current plan has no such precision. Its projected positive fiscal impact ranges from 3.5 billion to 5 billion.

The best thing a new party can really promise voters is the purity of its intentions. The specifics will always be tied to necessity and constraints. That's why the Greek opposition, led by Antonis Samaras, is now offering Tsipras help in the event his concessions to creditors make it impossible for him to hold his ruling coalition together. Reality is harsh, but it can't be tuned out.

To contact the author on this story:

Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor on this story:

Mary Duenwald at mduenwald@bloomberg.net

http://www.bloombergview.com/articles/2015-04-02/greece-s-syriza-confronts-reality