Greece Heads Toward New Crisis in Debt Saga as Support for Tsipras Slumps

The ruling Syriza party is considering calling snap elections in 2017, as it loses hope of winning concessions on debt relief or austerity from Greece’s creditors

The Wall Street Journal

By NEKTARIA STAMOULI and  MARCUS WALKER
Dec. 12, 2016 1:48 p.m. ET
36 COMMENTS
ATHENS—Greece’s crisis is approaching a potential breaking point after a year of relative calm, as a government with declining political stamina confronts creditors’ unyielding demands.

The ruling left-wing Syriza party, grappling with slumping popularity, is considering the option of calling snap elections in 2017, as it loses hope of winning concessions on debt relief or austerity from the eurozone and International Monetary Fund.

No decision for elections has been made, said Greek officials, who added that they would review the state of negotiations in January, after pressing creditors again to show more flexibility.



Elections would allow Syriza—if not Greece—to escape from the pressures of an unpopular bailout program whose strained math has eventually brought down every Greek government since the crisis began in 2009. Syriza’s leader and Prime Minister Alexis Tsipras, like his predecessors, is struggling to meet strict fiscal targets in a recession-scarred country weary of austerity.

A renewed flare-up of the Greek debt crisis in 2017 would create a further test for the cohesion of the European Union, whose political establishment is facing challenges from EU-skeptic populists in a string of major elections next year. European governments’ appetite for another bout of Greek drama is low—but so too is willingness to grant Athens concessions to avoid one.

The embattled Mr. Tsipras, who is due to hold talks with the leaders of Germany and France in the coming days, surprised Greeks and creditors last week with fiscal gifts that were widely seen as preparing the option of elections. He promised 1.6 million pensioners a Christmas bonus of between €300 ($319) and €800. He also suspended a planned increase in sales tax for Aegean islands that have received large numbers of Middle-East refugees. EU officials said they would study whether Mr. Tsipras’s promises are compatible with Greece’s bailout commitments.

Snap elections next year would lead to Syriza’s defeat, party officials expect, and a new government led by the conservative New Democracy party. Syriza officials say their goal in possible elections would be to avoid being crushed—which they view as a danger if they hold on too long without concessions from creditors.


Until November, Syriza was hoping that its latest talks with lenders would unlock fresh loans without further heavy austerity measures. Greek ministers, meanwhile, hoped to win clear European commitments on debt relief that would allow the European Central Bank to include Greece in its bond-buying program, delivering a potential boost to Greece’s depressed economy.

However, negotiations this month have shown Greek leaders that they are caught between the demands of their most powerful creditors: Germany and the IMF.

Berlin is unwilling to commit to more than minor reductions of Greece’s debt burden. The Washington-based fund is insisting on politically onerous overhauls including pension cuts, especially if Germany insists that Greece should run large budget surpluses.

The IMF has pressed Europe to reduce Greece’s budget target to a surplus, before interest, of 1.5% of gross domestic product, instead of the current goal of 3.5%. But European governments are unwilling to agree, partly because Greece would then need even more debt relief.

If the goal remains 3.5%, then IMF officials say they need to see deeper Greek fiscal retrenchment to hit that target. Syriza officials complain that the IMF is pressing for cuts that go far beyond what they, or any Greek government, can deliver.

The IMF, anxious to avoid being blamed for austerity, says it would go easier on Greece—if Europe lowered the fiscal target.

The IMF is also insisting on further deregulation of Greek labor law, which Syriza has denounced as an unacceptable attack on already-weakened workers’ rights.

Germany is eager to secure the IMF’s participation in the Greek bailout. The fund has been involved in the ill-fated Greek rescue since 2010, but it didn’t sign up to Greece’s current bailout plan, agreed upon in 2015.

Berlin officials agree with the IMF that Greece still needs deeper economic overhauls, but they disagree with the fund about Greece’s debt. Germany says there is no need to make a decision about whether and how to restructure Greece’s mountain of rescue loans until the bailout program ends in 2018. The IMF says Greece’s debt is clearly unsustainable and wants Berlin to specify now what sort of debt relief it is willing to offer, even if final decisions are postponed until 2018.

Without a compromise between the IMF and Germany—which has proved elusive since early 2015—Greece’s governments are likely to continue to face demands for painful retrenchment with little reward.