With Greece expected to run out of funds by April 9th, the clock is ticking for a new financing agreement that will prevent a default and a potential “Grexit.”
The negotiations this far have demonstrated the unwillingness of Germany and the rest of Greece’s creditors to provide liquidity without a strong commitment by the Greek government to continue economic reforms and servicing its debt obligations. Despite an agreement to rename the “Troika” the ”Brussels Group,” the distance between the two sides remains significant. Expenditure cuts in wages and pensions and a continuation of the previous government’s privatization program are rejected as “red lines” by Athens. On the other side, policies to tackle the humanitarian crisis, the re-hiring of laid-off public workers and the elimination of a controversial property tax are rejected by the creditors due to their high budgetary cost. Moreover, the Greek government’s demand for Nazi war reparations along with its closer ties with Russia have further isolated Greece from its European partners.
With time running out it seems that the government has two options; unfortunately for Syriza and its leader Alexis Tsipras, both come with high political costs. On the one hand, an agreement in which Athens surrenders to German demands will be seen by voters as a continuation of the same austerity program that Mr. Tsipras vowed to reject upon assuming office. Apart from a drop in popular support, Syriza risks losing a number of cabinet ministers and MPs belonging to the “Left” wing of the party, which fiercely opposes austerity.
On the other hand, with its tough stance in negotiations, the government is risking a total rift with Germany and the rest of its partners that could lead to Greece’s default and exit from the Eurozone. This would cripple the economy and the governing party would be held accountable in new parliamentary elections. Even though Mr. Tsipras was elected on a strong anti-austerity platform, he was also elected on a mandate of continued membership in the Eurozone and use of the common currency. In all the opinion polls conducted since the beginning of the crisis, Greeks have always in large majorities, supported the country’s membership in the Eurozone. Therefore, a deadlock with its partners and default would likely signal the end of Syriza’s position in government and a loss of the party’s popular support.
Compromise between the two sides and an agreement that guarantees Greece’s position in the Eurozone would be to everyone’s benefit. Greece would get the necessary financing to pay its current obligations and continue economic reforms, while the high political risk of a “Grexit” will be effectively removed from markets and other Eurozone economies. With the right communication strategy, the government can minimize the political cost of reneging on its pre-election promises. Alternatively, the social and economic costs of default will irreparably tarnish its legacy and far outweigh any short-term political costs that Syriza will face.