The right rupture
Does Alexis Tsipras, the Greek prime minister, have the guts to break with his far-left faction? The country’s fate hangs on the answer to this question.
Greece’s immediate prospects are dicey. It will default in mid-April unless its euro zone creditors lend it some money or it scrapes together cash from other sources. The key short-term issue is whether the reform proposals Athens plans to submit to creditors on March 30 will be adequate to unlock some credit.
The government sent negotiators to Brussels over the weekend to thrash out the package, following another week during which the technical teams on the ground in Athens achieved little. Meanwhile, Yanis Varoufakis, the finance minister, mused publicly about the possibility of a “rupture.” The implication was that Athens would default if it was not able to secure an acceptable deal with its creditors.
Such a rupture could happen as early as April 9 when Greece has to repay a tranche of money it owes the International Monetary Fund. If Athens defaulted then, capital controls would presumably be imposed at the same time, coinciding with the four-day Greek Easter holiday that starts on April 10.
Tsipras might toy with the idea of calling a snap election to gain renewed support from the Greek people for such a tough line. Given that the opposition is in disarray and his own popularity is riding high, he might hope to win such a vote.
But the government’s approval has already fallen from 83 percent in February to a still high 60 percent last week, according to a poll for Alpha TV, a Greek television station. Its popularity would probably plunge further since cash machines would run out of money within days and key commodities such as petrol might have to be rationed after capital controls were imposed.
If Tsipras is rational, he will want to avoid this scenario. The problem is that he will then have to do a deal with his creditors that will also be painful. They are likely to require him not just to make promises but to start implementing them before they release any more cash.
This is where the prime minister will run into a confrontation with his far-left faction, which accounts for around 30 to 40 of his 149 members of parliament. They will accuse him of selling out, and may well vote against the laws needed to implement a deal with his creditors.
Tsipras would probably still be able to pass legislation with the help of some opposition parties. But such an arrangement could not last for long. In that scenario, the most sensible move would be to call a second election.
The prime minister could then kick out his far-left faction and replace its MPs with moderates. In this scenario, there wouldn’t have been a rupture with Greece’s creditors or capital controls, so Tsipras would be well placed to win the election with an enhanced majority.
The snag is that the prime minister would have to summon up the courage to break with his political comrades. It is unclear whether he is tough enough to do this.
Meanwhile, there is a risk that the government will charge off in the wrong direction even if it secures a quick fix with its creditors in the next week or so. It has promised to deliver a 1.5 percent fiscal surplus before interest payments this year, according to Reuters. But this seems impossible without further austerity measures which will crush the economy.
Tsipras may think he will be a hero at home if he secures an agreement for a 1.5 percent surplus. After all, the current agreement calls for a 3 percent surplus.
But since that deal was made, the economy’s prospects have deteriorated. Political uncertainty has shattered confidence and lack of liquidity is asphyxiating business. The European Central Bank has kept Greek banks on a tight leash, while the government itself has grabbed every little bit of cash it can get its hands on to stop it going bust.
Athens is still predicting 1.4 percent growth this year. But it will be lucky to grow at all. Things will only settle down if the government reaches a new long-term deal with its creditors – for which the current discussions are just the preliminary skirmishing – and that isn’t scheduled until June.
In other words, Tsipras is setting himself up for failure by promising a 1.5 percent surplus. He needs to find a way off this hook. But this won’t be easy since the creditors would consider even a 1.5 percent figure a concession and might hold out for a higher number – as the lower the surplus, the more money they will have to cough up.
The prime minister’s best bet is to convince his creditors that he is so serious about structural reforms that they don’t need to twist the austerity screw further. There is a huge amount to be done – on tax evasion, corruption, rule of law, liberalisation, privatisation, removal of special privileges and so forth. Some of these reforms even fit into a left-wing agenda.
The problem is that Tsipras has not convinced his creditors that he is serious about reform or that his team is remotely on top of the detail. He needs a game-changer. This should, indeed, be a rupture – but with his left faction, not his creditors.