Moving from rhetoric to a lasting resolution

Finding common ground between the Syriza-led government and German-led austerity measures is needed if Greece — and the eurozone — is to survive, writes Ann Cahill.

EVERYBODY has everybody else over a barrel when it comes to the Greek issue. And Ireland will be watching from the sidelines, carefully assessing whether the country can benefit from whatever decisions are made.

While both countries are paying roughly the same percentage of its GDP on servicing debt, Ireland’s interest rate has been considerably higher than that of Greece. And if Greece manages to extend the length of time it gets to repay its debt — then Ireland is sure to look for similar arrangements.

This is not a contest of unequals. Syriza, the winning party in the Greek elections taking over one third of the votes, probably has more high-ranking economists taking seats in parliament than any other European political party.

They have carefully drawn up Syriza’s economic aims — the Thessaloniki programme — using a more socialist economic perspective than the troika has and masterminded by the man expected to be the finance minister, Euclid Tsakalotos, an Oxford graduate lecturing at Athens University.

But in the end, the talks already under way between Syriza and its mainly German and EU counterparts, will be all about politics. Anything agreed in the economic sphere must fit with the hugely different political needs of Germany, Greece, Spain and Italy.

The odds are evenly stacked. If no solution is arrived at, Greece can threaten to leave the eurozone or default on the €317bn it owes its bailors, the EU, ECB, and IMF — and that means eurozone citizens pick up most of the bill, of which Germany is on the hook for roughly €78bn, and Ireland €345m.

If that were all, perhaps the German chancellor, Angela Merkel, could sell it at home — arguing the eurozone was better off without this annoying partner that makes up about 1.6% of the eurozone.

But Greece is part of a currency union and cannot be isolated. The prevailing wisdom among economists of all colours is that a ‘Grexit’ would bring down Italy, the eurozone’s third largest economy that is now very vulnerable, and threaten the entire eurozone.

Syriza set out its stall in September and while some suggest their policies are out of kilter with eurozone rules, the facts and the statements of Syriza’s economists suggest otherwise.

Syriza’s programme includes: n Renegotiation of the debt with a haircut; n Higher taxation of the wealthy; n Wage increases for lower paid public servants; n Abolition of the newest property tax; n Increased funding for regional authorities; n 300,000 new jobs; n A €1bn national development bank; n Restoring the minimum wage to €751 a month; n Free medical care for the unemployed; n A “European New Deal” of public investment from the European Investment Bank; n And a case-by-case write-off of debt of those under the poverty line.

In all, the estimated cost is €11.3bn.

The outgoing centre right New Democracy government has already reduced the property tax, the big cuts to annual budgets have been achieved and having reached rock bottom, the economy is expected to begin picking up.

But as Mr Tsakatolos has pointed out, Greece needs to find the money for its programme, especially to drive down poverty levels and be allowed to run a primary budget balance (before debt servicing) rather than the 4% surplus it has achieved as demanded by the troika. It hopes the EU will inject around €7bn a year.

That, however, is not all that is required. It needs the troika — in this case the IMF — to pay the final programme instalment of €7bn next month, and the ECB to continue to provide liquidity to its banks hit by fresh insecurity over Syriza’s election. With 10-year bond yields at around 8%, compared to Ireland’s at 1%, Athens cannot afford to rely on the markets. Above all, it needs time, a lot of time, to start repaying its troika debts.

Some funds will come from Syriza’s plan to increase the threshold for tax and ensure very wealthy Greeks who have been escaping taxes for years contribute by collecting €2bn from a total of €68bn in arrears over seven years.

The moral argument can be spelt out in numbers too: unemployment at more than 25%; youth unemployment among those that have not emigrated at around 50%; GDP down by almost one third; poverty at a record high; public debt at 175.5% of GDP.

A lot of focus has been on Syriza’s 40-year-old leader, Alexis Tsipras. He has been seen as decidedly flakey, coming out initially as europhobe, talking about Greece leaving the euro and throwing out the troika. He has moved considerably since.

His real problem now will be to keep his government together, not just the widely dispirit Independent Greek party, but the members of his own party that in reality is a collection of different groups of the left and far left. Some will insist on nothing less than the nationalisation of the banks and other institutions, something that is unlikely to happen. Costa Lapavitsas, a professor of economics at London University who stood for Syriza, believes the only answer for Greece is to leave the eurozone. All will need to be convinced at a minimum that Greece is no longer dancing to the troika tune.

For Germany, the line will have to be considerably different. Anybody that believes the German national psyche will undergo a revolution is dreaming. They strongly believe that Greece has sinned, must be punished and cannot be trusted to make the necessary changes. For this reason they believe they must micro-manage the entire programme.

A programme that will meet some of the needs of a Greek people and the Germans and other main deficit hawks, will require trust. And at the moment there is no trust. Berlin can point to the fact that the Greek tax intake collapsed in January as citizens somehow appear to believe that their new government will remove this imposition.

Negotiations have been under way for some time between Athens, Berlin, Frankfurt, and Brussels, according to a myriad of sources. Politicians are nothing if not practical, and economists in this case know that you cannot afford to leave anything as pivotal as Greece to chance. Germany, according to reports, has sent Jorg Asmussen, government minister from the Socialist party and former ECB executive board member, to help come to an agreement.

If Germany can be persuaded to change the emphasis of its fiscal policies for the eurozone, to measure out austerity in doses that do not generate the kind of economic collapse seen in Greece, to restructure the debt and above all support policies that contribute towards growth, then perhaps Greece may survive, and with it the euro.