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| Greece Q&A: what now for Syriza and EU austerity? | Greece Q&A: what now for Syriza and EU austerity? |
| (about 1 hour later) | |
| Greece awoke to a new era of defiant anti-austerity on Monday after voters handed a decisive victory to the radical leftist party Syriza, putting Athens on a collision course with the European commission and international creditors. Under its 40-year-old leader, Alexis Tsipras, Syriza is the first anti-austerity party to take power in Europe and has quickly formed a majority coalition with the Independent Greeks party. | Greece awoke to a new era of defiant anti-austerity on Monday after voters handed a decisive victory to the radical leftist party Syriza, putting Athens on a collision course with the European commission and international creditors. Under its 40-year-old leader, Alexis Tsipras, Syriza is the first anti-austerity party to take power in Europe and has quickly formed a majority coalition with the Independent Greeks party. |
| Who is in the new Greek cabinet? | Who is in the new Greek cabinet? |
| Prime minister in waiting Alexis Tsipras has moved quickly to appoint Giannis Dragasakis as deputy PM. A longstanding MP, he was member of the central committee of the Communist party of Greece until 1991. His experience of government dates back almost 25 years to when he was a member of Xenophon Zolotas’ brief unity government as a deputy economy minister. | Prime minister in waiting Alexis Tsipras has moved quickly to appoint Giannis Dragasakis as deputy PM. A longstanding MP, he was member of the central committee of the Communist party of Greece until 1991. His experience of government dates back almost 25 years to when he was a member of Xenophon Zolotas’ brief unity government as a deputy economy minister. |
| Yanis Varoufakis has been given the brief of finance minister. Varoufakis insisted on Monday that Grexit was not “on the cards”. A former student of Essex university, the economist has dual Greek Australian citizenship. He has vowed to end “the humiliation and pain” of the last five years. The rest of the cabinet has yet to be anounced. | Yanis Varoufakis has been given the brief of finance minister. Varoufakis insisted on Monday that Grexit was not “on the cards”. A former student of Essex university, the economist has dual Greek Australian citizenship. He has vowed to end “the humiliation and pain” of the last five years. The rest of the cabinet has yet to be anounced. |
| Was a coalition with the Independent Greeks the only option? | Was a coalition with the Independent Greeks the only option? |
| No. The centrist Potami party agrees on the need for some debt relief, less austerity and a higher minimum wage. But it is in favour of sticking to Greece’s European commitments and would weaken Tsipras’s negotiating position in Brussels, where he wants to be recognised as leading a tough government prepared to leave the eurozone if debt relief is not on offer. | No. The centrist Potami party agrees on the need for some debt relief, less austerity and a higher minimum wage. But it is in favour of sticking to Greece’s European commitments and would weaken Tsipras’s negotiating position in Brussels, where he wants to be recognised as leading a tough government prepared to leave the eurozone if debt relief is not on offer. |
| What does Syriza want? | What does Syriza want? |
| Tsipras has campaigned consistently for a reduction in the level of debt Greek and not just easier credit terms. In the last four years Athens’ debts have spiralled to 175% of GDP, partly because GDP has shrunk by 25%. So its ability to pay down debt has diminished. Tsipras says that without some debt relief, Athens will never escape this debt spiral. | Tsipras has campaigned consistently for a reduction in the level of debt Greek and not just easier credit terms. In the last four years Athens’ debts have spiralled to 175% of GDP, partly because GDP has shrunk by 25%. So its ability to pay down debt has diminished. Tsipras says that without some debt relief, Athens will never escape this debt spiral. |
| Can Syriza tear up its debt deal with Brussels? | Can Syriza tear up its debt deal with Brussels? |
| There are many forces standing in the way. First, Brussels officials are only too well aware that a deal to forgive a proportion of Greek debt will trigger similar claims from Dublin and Lisbon, which were both forced to accept responsibility for all their banking crisis debts and were then shackled to long-term repayment plans. This would effectively treble any bill arising from a Greek debt deal. | There are many forces standing in the way. First, Brussels officials are only too well aware that a deal to forgive a proportion of Greek debt will trigger similar claims from Dublin and Lisbon, which were both forced to accept responsibility for all their banking crisis debts and were then shackled to long-term repayment plans. This would effectively treble any bill arising from a Greek debt deal. |
| Who owns Greek debt? | Who owns Greek debt? |
| Private sector lenders, mostly hedge funds, own some Greek debt, but their slice is much diminished after a deal a couple of years ago. Most Greek debt is now owned by various European Union institutions and the International Monetary Fund, which joined the EU bailout of Greece in 2010. | Private sector lenders, mostly hedge funds, own some Greek debt, but their slice is much diminished after a deal a couple of years ago. Most Greek debt is now owned by various European Union institutions and the International Monetary Fund, which joined the EU bailout of Greece in 2010. |
| What can Syriza achieve in negotiations? | What can Syriza achieve in negotiations? |
| Brussels is ready to extend debt repayments deadlines. An EU source told the AFP news agency: “We will not escape a renegotiation.” There is room for manoeuvre. It may also be possible to drive down the interest rate on debts even more. Interestingly, the president of the European Central Bank, Mario Draghi, said last week that should Greece stick with its bailout terms, it will be in a position to buy its debt at knockdown rates to keep the government’s finances rolling – and by implication restore the country’s international reputation. | Brussels is ready to extend debt repayments deadlines. An EU source told the AFP news agency: “We will not escape a renegotiation.” There is room for manoeuvre. It may also be possible to drive down the interest rate on debts even more. Interestingly, the president of the European Central Bank, Mario Draghi, said last week that should Greece stick with its bailout terms, it will be in a position to buy its debt at knockdown rates to keep the government’s finances rolling – and by implication restore the country’s international reputation. |
| What about debt owned by the IMF? | What about debt owned by the IMF? |
| The IMF has monitored Greek austerity since 2010. Its officials were back in Athens before Christmas but were unable to complete a report ahead of the deadline next month to release another tranche of funds. The €7.2bn February payment is needed for Greece to avoid default, though it can be rolled over under certain conditions if talks look fruitful. Ominously, the world’s lender of last resort has warned Greece that failure to repay its debts will carry “consequences”. | The IMF has monitored Greek austerity since 2010. Its officials were back in Athens before Christmas but were unable to complete a report ahead of the deadline next month to release another tranche of funds. The €7.2bn February payment is needed for Greece to avoid default, though it can be rolled over under certain conditions if talks look fruitful. Ominously, the world’s lender of last resort has warned Greece that failure to repay its debts will carry “consequences”. |
| Is “Grexit” a possible outcome? | Is “Grexit” a possible outcome? |
| It is possible Tsipras will quickly become frustrated and move to sever links with Brussels, although a first step would be to leave the euro. The problem is that opinion polls say the majority of Greeks – more than three-quarters – want to remain in the EU. If it came to a referendum, Tsipras could not assure victory. | It is possible Tsipras will quickly become frustrated and move to sever links with Brussels, although a first step would be to leave the euro. The problem is that opinion polls say the majority of Greeks – more than three-quarters – want to remain in the EU. If it came to a referendum, Tsipras could not assure victory. |
| How would Grexit affect Greece? | How would Grexit affect Greece? |
| Without any debts to repay and annual budget surplus, a Greek government could regenerate the economy and refashion the political landscape. Should it succeed in its anti-corruption agenda and enact targeted tax reforms, Syriza leaders say the country could be reborn. However, it will want to avoid the fate of Argentina, which defaulted on its debts, but has failed in the subsequent decade to deal with corruption and remains a pariah among private lenders. Some analysts have also said that while an influx of tourists would boost the finances of an independent Greece, it would make up only a fraction of the trade lost from leaving the EU. | Without any debts to repay and annual budget surplus, a Greek government could regenerate the economy and refashion the political landscape. Should it succeed in its anti-corruption agenda and enact targeted tax reforms, Syriza leaders say the country could be reborn. However, it will want to avoid the fate of Argentina, which defaulted on its debts, but has failed in the subsequent decade to deal with corruption and remains a pariah among private lenders. Some analysts have also said that while an influx of tourists would boost the finances of an independent Greece, it would make up only a fraction of the trade lost from leaving the EU. |
| How would it affect the EU? | How would it affect the EU? |
| Officials in Brussels and the European Central Bank in Frankfurt have built a financial firewall around Greece. Should Syriza opt to leave and renege on all its debts, then the EU has enough money set aside to cover the losses. That’s why the financial markets remained calm on Monday morning. | Officials in Brussels and the European Central Bank in Frankfurt have built a financial firewall around Greece. Should Syriza opt to leave and renege on all its debts, then the EU has enough money set aside to cover the losses. That’s why the financial markets remained calm on Monday morning. |
| What are the implications for other European countries? | What are the implications for other European countries? |
| The outcome of the Greek election is being closely watched. Around the world, leaders are concerned that the eurozone, which is the world’s largest economic bloc, recovers and drives global growth. Inside the EU, centrist politicians are under pressure from radical parties of left and right to ditch the current budget restraints and debt repayment rules which have forced public spending cuts and high unemployment. | The outcome of the Greek election is being closely watched. Around the world, leaders are concerned that the eurozone, which is the world’s largest economic bloc, recovers and drives global growth. Inside the EU, centrist politicians are under pressure from radical parties of left and right to ditch the current budget restraints and debt repayment rules which have forced public spending cuts and high unemployment. |
| How will they react in Spain? | How will they react in Spain? |
| The right-leaning Mariano Rajoy, prime minister and leader of Spain’s PP party, is feeling the heat from a secessionist movement in Catalonia and an anti-austerity movement led by the new political party Podemos. Rajoy wants a negotiated settlement disguised as Brussels taking a hard line. He has forced through many labour reforms that he believes could be unpicked if debt relief is offered to Greece and by virtue of that, on offer to all eurozone countries. | The right-leaning Mariano Rajoy, prime minister and leader of Spain’s PP party, is feeling the heat from a secessionist movement in Catalonia and an anti-austerity movement led by the new political party Podemos. Rajoy wants a negotiated settlement disguised as Brussels taking a hard line. He has forced through many labour reforms that he believes could be unpicked if debt relief is offered to Greece and by virtue of that, on offer to all eurozone countries. |
| What about other countries? | What about other countries? |
| There are concerns that other governments grappling with austerity would be brought down by reinvigorated anti-austerity parties, and not just Spain. | There are concerns that other governments grappling with austerity would be brought down by reinvigorated anti-austerity parties, and not just Spain. |
| Several powerful EU governments are under pressure domestically from far-right or leftist parties running for election on anti-austerity tickets, not least France. Those states believe succumbing to Syriza’s threats will only boost the standing of similar homegrown parties and undermine their own prospects. Then there is Germany and its loyal supporter Finland. These right of centre governments have taken a hard line, reflecting their view that austerity is needed to bring government finances back under control and, in the case of Greece, to cleanse a corrupt society that still exists on favours, backhanders and a largely hidden economy. | Several powerful EU governments are under pressure domestically from far-right or leftist parties running for election on anti-austerity tickets, not least France. Those states believe succumbing to Syriza’s threats will only boost the standing of similar homegrown parties and undermine their own prospects. Then there is Germany and its loyal supporter Finland. These right of centre governments have taken a hard line, reflecting their view that austerity is needed to bring government finances back under control and, in the case of Greece, to cleanse a corrupt society that still exists on favours, backhanders and a largely hidden economy. |
| When are the potential flashpoints? | |
| The Eurogroup of finance ministers meet on Monday and Ecofin on Tuesday. The Eurogroup is made up of 19 eurozone finance chiefs, though without a government, Greece will be absent. Ecofin welcomes the full 28 EU finance ministers, including the UK’s George Osborne. Greece is not on the agenda of either meeting, but ministers are expected to dwell on what Syriza’s landslide victory means. Both the Eurogroup and Ecofin, which advises the Council of Ministers and EU Commission on financial policy, meet each month. | |
| When will Angela Merkel have her say? | |
| The Greek question could ignite an EU summit scheduled for 12 February, chaired by new EU president Donald Tusk. The former Polish prime minister has already presided over one meeting, which he proudly boasted only lasted a few hours. If speed is his ambition, the next meeting could prove a little frustrating. Merkel will attend with other PMs and presidents. In the grand tradition of the EU, expectations of a bunfight based on principled positions are likely to be disappointed. A fudge is always the default option. | |
| Will the IMF have its say? | |
| A report by the IMF on the progress made by Athens towards more stable public finances, due last December, should be ready by the end of the month. It could pave the way for a massive rescheduling of Greek debt if the new government gets a clean bill of health. A more nuanced and critical report is expected. | |
| Debt interest delays can help. If debts that total €240bn are repaid over 50 years instead of 30 years, Greece would save around €3bn a year in interest costs. | |
| What about the next debt repayment date? | |
| Greece is required to pay €22.6bn in principal and interest on loans this year to the troika made up of eurozone countries, ECB, and IMF. This year’s schedule of payments includes €1.6bn due in February, almost twice as much in March, €1.5bn due in June, then another €8bn covering July and August. With Greece running a €10bn deficit in 2014, mostly the result of debt repayments, paying the monthly bills is going to be impossible without EU/IMF funds. |