Greece’s New Year of Living Dangerously

Tsipras is antagonizing creditors again, setting the stage for a new bailout showdown and an election.

The Wall Street Journal

By YANNIS PALAIOLOGOS
Dec. 21, 2016 3:05 p.m. ET
4 COMMENTS
If last year was the year of upheaval and survival for Alexis Tsipras, this year has been the year of the slow grind. As we near the end of 2016, Mr. Tsipras finds himself squeezed—by Germany and the International Monetary Fund, by Turkey and the refugee crisis, by his false promises and collapsing popularity—to the point of political extinction.



The pace of decline in the Greek prime minister’s fortunes is remarkable. Coming into the final quarter of the year, the government appeared to have a narrative and a plan. In early October it put the finishing touches on the first review of its third bailout program—albeit a year later than initially expected. Mr. Tsipras and his economic team then set the ambitious target of finalizing the second review by the Dec. 5 meeting of the eurozone finance ministers. This would have cleared the way for the European Central Bank to buy Greek government bonds under its quantitative-easing program, sending a strong signal of confidence to investors.

There were warning signs, of course, that all would not go smoothly. Mr. Tsipras’s government ministers continued, for instance, to obstruct central planks of the bailout program, especially the privatization of state-owned assets. But doubters were told to ignore the noise. A cabinet reshuffle in early November, sidelining some members of this internal resistance, was an encouraging sign.

Meanwhile, negotiations progressed slowly. Further labor-market deregulation remained a sticky point. Demands by the IMF for €4.5 billion ($4.68 billion) in new spending cuts or tax increases for 2019, to be passed now, were rightly rejected as politically impossible.

The Dec. 5 eurozone meeting came and went without a staff-level agreement. Greece’s eurozone partners declared their commitment to implementing short-term measures of debt relief, which would reduce Greece’s debt by 21.8 percentage points of gross domestic product by 2060. But it was a flimsy carrot to the heavy stick of further austerity measures.

On Dec. 8, in a move that caught creditors by surprise, Mr. Tsipras announced that his government would be distributing any excess primary fiscal surplus above the program’s 0.5%-of-GDP target to the 1.6 million pensioners receiving monthly pensions of €850 or less. He also announced a freeze on the consumption-tax increase for those islands that had been disproportionately burdened by the refugee crisis.

One can quibble about the prime minister’s claim to be targeting spending on those most vulnerable. None of the money is going to Greece’s long-term unemployed, who make up 74% of the total unemployed population. Less than 2% of those receive the paltry long-term unemployment benefit. Pensioners, of course, are a much better organized voting bloc.

But the real issue is that with his announcement Mr. Tsipras derailed the strategy he was supposedly following. As the European Stability Mechanism, the European Commission and—most vehemently—the German finance ministry rushed to note, Athens was violating the terms of the bailout agreement. Greece is allowed to spend its excess primary surplus, but only after that surplus has been confirmed by Eurostat in April. Even then, the extra spending is limited to 40% of the additional surplus. The government must also consult with creditors about how the money is spent.

In response, Greece’s partners last week temporarily froze even their modest measures of debt relief, prompting Mr. Tsipras to adopt a tactic ominously reminiscent of the turbulent days of 2015—speaking in different tongues at home and abroad. He has been touring Greece proclaiming his government’s right to spend its surplus however it sees fit and berating the center-right New Democracy opposition as lackeys to Germany’s finance minister, Wolfgang Schäuble. Meanwhile, Mr. Tsipras’s finance minister has been apologizing to Greece’s European partners for the lack of consultation and has offered to pledge in writing to the one-off nature of the spending package.


The expectation now is that the second review originally targeted for Dec. 5 could take months to complete, delaying any ECB decision on QE and casting a cloud over the Greek economy’s prospects. Private-sector economists were already skeptical of the forecasts—shared by the Greek government and its creditors—for GDP growth close to 3% in 2017. This skepticism has now been redoubled.

Did Mr. Tsipras have a strategic plan when he announced his Christmas gifts? Has he decided to call an early election, salvage what he can (he is very unlikely to win) and try to come back stronger in a few years? The country’s recent referendum revealed Mr. Tsipras to be a man who lacks a long-term strategy. When pressed on all sides, he seeks to regain the initiative. But now he finds himself even more tightly constrained than before. Even if this wasn’t his plan, an early election is now more likely as an outcome.

Mr. Palaiologos is a journalist at the Kathimerini newspaper. The second edition of his book “The Thirteenth Labour of Hercules” was published in July (Portobello Books).