No time for Tsipras to go wobbly on Greek reform

12/11/2015

Rebuilding credibility within the eurozone is first step towards debt relief

Alexis Tsipras’s first administration flirted with sovereign default in the summer before ending a bruising stand-off with Greece’s eurozone partners by signing a document that was in spirit almost identical to the one it had hitherto rejected. Now, two months into his second term and with the ink barely dry on that deal, Mr Tsipras seems determined to start another fight with his creditors.

The prolonged period of political brinkmanship from both sides of the negotiating table inevitably weakened the mutual trust between Greece and its single-currency partners. The bailout deal has been signed, but the possibility of Grexit has never been fully eliminated. While the current frictions are no more than that, they are heading in the same way as the last.

By now, Greece should have already received the first €2bn of its bailout funds. Instead, the October instalments are still in Brussels’ coffers. The eurozone will only release them once the Greek parliament has passed 48 “milestones”, mostly leftover pledges from Greece’s previous two bailouts. But not only is Mr Tsipras three weeks late with these reforms, he wants to reopen the negotiations over a contentious issue, home foreclosure protection.

The Greek government wants to keep the existing generous legal protection from house repossessions. Greeks already beaten down by the thinning prospect of finding a job and shrinking welfare support should not also be forced to move out of their homes.

The eurozone officials, on the other hand, want to limit the protection to those households below the poverty line. They believe that a more lax approach would merely encourage tactical defaults. They have already earmarked €10bn for recapitalising the country’s frail banks; anything that would add to the burden of non-performing loans may undermine this goal.

Mr Tsipras is understandably concerned about the impact of austerity on homeowners. He has a duty to promote the welfare of Greek citizens. There is also the larger question of the sustainability of the bailout deal Mr Tsipras signed under duress in July. Many observers, including the IMF, have called this into question. Yesterday’s general strike of civil servants is an accurate reflection of the anger and reluctance the Greek nation feels towards the required reforms. It is not just the prime minister who itches to revisit the terms of the bailout.

Yet for Mr Tsipras to go back into battle with the eurogroup requires him to believe either that the creditors have changed their attitude to Greece or his government has become a great deal better at negotiating. Neither seems likely. Hosting thousands of Syrian refugees may have earned Athens some goodwill from Berlin, but the memory of months of endless political talks is too fresh to start anew.

While Mr Tsipras’s shifts and turns have alienated his international partners, they have consolidated his domestic political position. Within less than a year, he has won two national elections and a referendum, and faces little opposition within and outside of his party. It is now time to use this political capital. Passing the first bailout review without delay would help to build credibility. It is also the only way to unlock the bigger prize of debt relief. The prime minister ought to be persuading his colleagues and the public of the necessity of this, not encouraging them to believe that a fight with creditors can yield dividends. That he is not doing this — so soon after the election — suggests his second term may be no more productive than the first.

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