Greece owes 330bn Euro’s to the IMF/ECB/EU and has no way of paying it back. For the umpteenth time he stood on the precipice again this week, looked over and backed down. If anything his situation only gets worse. The Greek economy has shrunk 25% in the last 5 years, it is currently in recession again and shows no sign of recovery. Yet next week Tsipras has to pay the International Monetary Fund [IMF] 1.6bn Euros. If he cannot do so he loses the 7bn Euros promised to Greece under the terms of previous loans.
The Greek economy simply cannot afford the loss.
In order to secure this latest loan he had to promise the Troika [IMF, EU and ECB] further cuts in public service spending and higher taxes, all in breach of the manifesto commitments Syriza made to voters in January. He has therefore agreed to raise a further £2.7bn to pay to the Troika from Greece's crumbling economy.
This latest austerity package includes cutting Greece’s pension bill by increasing the retirement age, demanding higher contributions from workers and scrapping early retirement schemes. Additionally Tsipras aims to raise £1bn by increasing VAT rates for certain items, charging wealthier pensioners for some health services and raising Corporation tax.
None of this will be easy.
VAT for example is already at 23% and 8,500 businesses have gone bust this year alone. And in truth this latest ‘compromise’ offers little long-term solace. It simply buys Greece time to limp on to its next financial humiliation in August. The Greek economy remains in a desperate state. Its unprecedented level of debt [standing at 180% of GDP] chokes any chance of recovery. Official unemployment is at 25%, whereas under-employment is far higher. One in two youngsters is out of work. One million others have already emigrated.
This depressing picture is all a far cry from the euphoria of January 25th when Syriza won the General Election. Back then they promised to implement a 7-point programme known as its ‘Thessaloniki Declaration’. This committed them to increase the National Minimum Wage to 751 Euros per month [£625/month], to lift the basic state pension to 750 Euros/month, to ensure everyone had electricity and no one was disconnected, to get 50% of the national debt written off and negotiate better terms on the remainder by mobilising international opinion behind Greece’s plight and convening a conference of all debtor nations to press for that write off.
Unfortunately none of those promises has been kept and for one simple reason. It has no power to do so.
The Troika [the International Monetary Fund, European Central Bank and European Union] hold all the ‘aces’. Now Syriza merely promises not to cut the National Minimum Wage or state pension and it sells that as a triumph. Maybe it is in the circumstances.
Yet remarkably Syriza is more popular now than it was in January.
(Two podcasts I made from Greece in January)
The reason is apparently because the Greek people are pleased Syriza stood up to the Troika. Previous Governments were seen as apologists for the moneymen and they struck poor deals. This renewed sense of pride does not put bread on the table but it has won respect nonetheless. Why does Syriza not just leave the Eurozone and walk away from these crippling debts run up by its useless predecessors?
The answer is because ‘Grexit’ is not politically popular.
Syriza doesn't support it feeling that the consequences of reintroducing the Drachma would lead to even greater economic and political instability. The Greek people are hostile too because they don't have the stomach for the uncertainty and upheaval it would bring. Equally, the Eurozone’s architects Germany and France believe ‘Grexit’ would undermine the political and economic rationale behind the single currency. They believe it would be better to keep Greece inside. And therefore notwithstanding the political pressure from their own domestic electorate determined to see Greece abide by the terms of the Eurozone deal they signed Angela Merkel and Francois Hollande are determined to see Greece remain in the Euro.
Both sides are guilty of underplaying the long and painful road Greece has to travel for many years to come if it remains inside the Eurozone. It will not be fun for anyone. Tsipras believes his Groundhog day’ will end when the Troika agree to write off some of his country’s backbreaking debt.
It has been a forlorn hope so far.