Tsipras predicts Greek debt haircut after German elections


The great thing about Washington, D.C. is the flow of visitors we see from throughout the world and the relative access to top officials through top-notch organizations such as the Brookings Institution, which hosted Greek opposition leader Alexis Tsipras for a 90-minute session Tuesday.Greece Flag Icon

The beleaguered Greek economy has receded from headlines somewhat since the razor-close election in June 2012 (itself a rerun of an earlier inconclusive vote in May 2012) and since the conclusion of the latest agreement, reached in October 2012, between Greece’s government and the ‘troika’ of the International Monetary Fund, the European Commission and the European Central Bank for the disbursement of cash to the nearly bankrupt Greek government in exchange for €13.5 billion in budget cuts.

Tsipras leads SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς), which finished a very narrow second place to the center-right New Democracy (Νέα Δημοκρατία), whose leader Antonis Samaras, now prime minister, leads a broad pro-bailout coalition.  Although SYRIZA lost the election, it’s the largest anti-austerity force in Greece, and it either leads or ties New Democracy in most polls.

Given that Greece’s unemployment rate keeps increasing (it’s currently around 27%) and it’s entering its sixth consecutive year of economic contraction, even as the government’s been forced into adopting increasingly harsh austerity measures, it’s hard not to see Tsipras as a future prime minister.

Tsipras, who’s made several international trips since last June, has been on somewhat of a campaign to convince the world that he’s not a crazy socialist to be feared, but rather well-placed within the Keynesian macroeconomic tradition of the social democratic left, whose European leaders believe that austerity alone cannot deliver the kind of boost to the economy that will result in greater GDP growth and more employment.  

If SYRIZA is the ‘radical’ left, Tsipras argued, it’s only radical in that it wants to mark a rupture from the old left that the traditionally center-left PASOK (Panhellenic Socialist Movement – Πανελλήνιο Σοσιαλιστικό Κίνημα) represents.  PASOK has joined in the pro-bailout coalition headed by New Democracy.

Indeed, speaking to a crowd in Washington just one day after the inauguration of U.S. president Barack Obama, who delivered an inaugural address Monday widely seen as one of the most progressive in a generation, Tsipras called for a ‘European New Deal’ and hailed U.S. Federal Reserve chairman Ben Bernanke for applying the lessons learned by the United States following the Great Depression of the 1930s.

Nonetheless, he’s shown no sign of backing down in his belief that European-wide austerity is the greatest threat to the long-term economic prospects for the eurozone.

Tsipras said that it’s clear that Germany and the European Union need to agree to a haircut on Greek debt.  Referencing the 1953 deal whereby the United States leaned on West Germany’s creditors to accept a 50% haircut on the war-devastated country’s debt, Tsipras argued that German chancellor Angela Merkel was waiting until German elections, set to take place in September, before agreeing to a Greek debt haircut that would make Greece’s public debt load viable.

Tsipras also made clear that he would be willing to play hardball with the European Union, noting that the eurozone is a chain that’s only as strong as its weakest link.

‘If one of these links break, not only will it be bad for the link, it will be bad for the entire chain.  We know this very well, and our allies and our friends in Germany know this as well,” he said.

“We’re not asking for Berlin’s sympathy,” he added earlier in the talk.

That’s not an incredibly veiled threat, but it’s probably an empty one, given that the current government coalition remains relatively strong, and Tsipras himself is likely in no rush to take over as prime minister with Greece’s public finances in such shambles.

But there’s no mistaking that Tsipras is deeply unhappy about the role to which Greece has been reduced during the recent eurozone sovereign debt crisis.  He referred to the troika’s memorandum of understanding with Greece as a ‘memorandum of austerity’ that’s ‘been rejected by life itself,’ that runs contrary to the laws of economics and that has imposed inhuman and barbarous policies.  He maintained that Greece was treated as a ‘guinea pig’ for the crisis, attacked the robber-barons and banks in Greece that have profited from the Greek tumult.

It’s easy to sympathize with Tsipras, because it’s clear to see how harsh budget cuts have not only ruptured the social system in Greece, reducing spending on health, education and every other government expenditure, but have also depressed aggregate demand in the wider economy, initiating a death spiral — the harsher the budget cuts, the more severe the effect on aggregate demand and the resulting drop in GDP growth, which means less tax revenues for the government and, therefore, an even wider budget gap.

That’s especially true in light of ECB monetary policy that kept money cheap throughout the 2000s thereby fueling the sale of German exports throughout the rest of the eurozone (though German voters are in no mood to subsidize a country that fudged its budget numbers in 2001 in order to adopt the single currency).

Tsipras acknowledged that the Greek economy has endemic problems, and that those problems have made the financial crisis even worse.  He excoriated both New Democracy and PASOK, which have switched in and out of power for most of the past half-century.  He argued that although bureaucracy remains a problem in Greece, and that the country needs to implement ‘structural reforms’ that copy ‘models at work in other European countries,’ though he wasn’t incredibly specific about what reforms he would implement if elected to government.

Earlier this week, the ‘troika’ announced a six-month moratorium on further demands for austerity, even as it was reported that the Greek budget deficit for 2012 was less than originally anticipated, in the expectation that it would give Samaras’s beleaguered government time to implement existing reforms:

It is hoped that imposing a moratorium on austerity will mean that the government can focus on implementing tax collection measures as well opening up closed professions without sparking further social unrest, and losing even more political capital, by introducing the new reforms.

Meanwhile, Greece is expected to achieve a further GDP contraction of around 4% in 2013.

Photo credit to Kevin Lees — Brookings Institution, Washington DC, January 2013.

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