The squeeze tightens

28/3/2015

As deadlines near, Greeks find it hard to believe Europe would let them go

In hard and uncertain times, a tax amnesty can be a fillip to the popular mood. Stelios Alivizakis, an engineering consultant struggling to survive in Greece’s depressed property market, was overjoyed when the radical left-wing Syriza government announced a one-week “special offer” for tax debtors. Anyone willing to pay some or all of their overdue taxes by March 27th would have the accumulated interest written off. “I’ll have a breathing space to get my affairs in order,” says Mr Alivizakis, who owes thousands of euros in unpaid income, property and value-added tax.

Many hard-pressed Greek businesspeople reacted in similar fashion. The finance ministry’s tax website attracted over 100,000 hits within minutes of the offer being posted. Nadia Valavani, the deputy finance minister charged with trying to fill Greece’s depleted coffers, said €50m ($55m) was raised within the first 24 hours. She hopes another €200m will flow in by the end of the week. That would cheer government officials fighting to pay pensions and civil servants’ salaries at the end of the month. It could also avert a possible default on April 9th, when Greece is due to repay a €450m loan instalment to the International Monetary Fund (IMF).

But solving Greece’s deeper financial woes won’t be that simple, and the euphoria that swept the country after Syriza’s election victory in January has subsided. Greece’s creditors are tightening the squeeze on the brash, inexperienced government of Alexis Tsipras. The prime minister has been unsuccessful in his efforts to unlock part of a €7.2 billion chunk of bail-out funding, needed to keep Greece afloat while it negotiates a new deal with the European Union and IMF. Yanis Varoufakis, his wayward finance minister, has annoyed EU officials and his peers, including Germany’s Wolfgang Schäuble. (Mr Varoufakis has been told to stay put in Athens and help bail-out technocrats draft an emergency reform package.)

Some in Athens were hopeful that a visit by Mr Tsipras to Berlin on March 23rd for talks with Angela Merkel, the German chancellor, would lighten the mood. Greek officials were upbeat afterwards, saying a “dialogue” had begun. But gloom returned the next day, when senior finance ministry officials from the euro zone rejected a Greek request to return €1.2 billion which Athens claimed it had paid by mistake to the European Financial Stability Facility, the EU’s own bail-out fund.

“We’ve been on a roller-coaster ride for two months now and there is no end in sight,” says Alkis Stamatopoulos, an olive-oil exporter. “It’s become impossible to plan ahead.”

Greece has fallen back into recession following last year’s modest recovery, according to central bank officials. This year’s growth projection has been unofficially cut from 2.9% to about 1.5% of GDP. After declining in 2014, the unemployment rate has edged up again. For the moment tourist bookings are still buoyant, but that could quickly change if the deadlock with Greece’s creditors continues.

Greek banks now rely on a drip-feed of emergency funding approved on a weekly basis by the ECB. Credit for importers has dried up; Athens-based firms complain of having to pay suppliers in full before goods can be shipped. Bigger groups have sent cash to accounts in other euro-zone countries. Greek shipowners bring in just enough to pay their employees.

One top Greek banker estimates that ordinary citizens have stashed €10 billion under their mattresses since Syriza came to power. They fear that Greece might follow the example of Cyprus in 2013 and be forced to impose capital controls. Another €15 billion of deposits has been moved out of the country. There is certainly anxiety in the air, especially among those with something to lose. Yet the sense of panic that swept Athens in 2012 when a “Grexit” seemed imminent is less acute today. “I don’t think the Europeans will abandon us after everything Greece has been through in the past five years,” says Maria Ifantidou, a pensioner.

Mr Tsipras is still riding fairly high in public esteem, though his approval rating has fallen from over 80% following the election in January to around 60% now. Syriza leads the centre-right New Democracy party by more than 20 points, despite the clouds on the financial horizon.

Many Greeks admired the tough stance that Mr Tsipras took towards the country’s creditors after his election, even if they are not sure whether it will have the desired result. As people start to worry about unpaid salaries and empty cash machines, his popularity is likely to fall further.

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