Greece’s New Government: Empty Pockets and Empty Promises

Syriza won last Sunday’s elections by a wider margin than expected. However, this is certainly not a full victory. Syriza would have secured only 99 out of 300 MP seats without the inexplicable 50-seat bonus granted to the party that comes first under Greece’s electoral law. The government that has already been formed is a mix of former PASOK politicians (the social-democratic party founded by A. Papandreou), Syriza’s left-wing veterans and younger generation of politicians, and a few “independent Greeks” from the small, far right-wing party.

Just a few hours before taking its oath, the new government heard the German Finance Minister Wolfgang Schauble take a hard line position towards the prospect of negotiations on Greek debt. Reading between the lines, Mr. Schauble effectively said that there is no time for useless discussions and that the creditors need an answer on the date that their representatives (i.e., the troika), come back to Athens to discuss and close the program.[1]

Greece: Too Weak and Small to Matter?

This might not sound like the most diplomatic riposte to a new government, but the reality is that Greece is quickly running out of money. One need only look at the numbers to understand that Syriza does not have six months to decide the future of the country—as the new deputy prime minister has stated—but more like six days, by which point Eurogroup president Jeroen Dijsselbloem  will have visited the country to press for answers.

The financial needs of the country are 24.5 billion euros for 2015 alone. But if you add the 2014 budget deficit (about 1.6 billion euros), Syrizia’s proposed cancellations of privatization projects this year (at a cost of 1.8 billion euros.), plus a balanced budget (as Syriza proposes) missing a primary surplus of 4 percent of GDP, then the tab for 2015 is more than 30 billion euros.

Domestic reserves are currently only around 2.5 billion euros, as Greece is still awaiting 11 billion euros in loans for 2014 and 9 billion euros in loans for 2015. So, even if Greece closes the program and receives these projected loans (something which currently appears unlikely), it will still need further financial assistance.

All this could make for a very short honeymoon for the new government. The creditors will be in no hurry to let Tsipras become the hero of the anti-austerity spirit in Europe. As I have argued previously, Syriza’s behavior is unpredictable, but the new prime minister has to take this seriously into account and try to find some common ground with the creditors or risk only making misery for himself and for the Greeks. Paul Krugman may be right to say that austerity is a nightmare in Greece, but what comes next might be something far worse than a nightmare. 

[1] Minister Schauble also again blamed the political elite for the unfortunate situation of the country, a view that he actually shares with Tsipras, but he avoided specifying and condemning those domestic and foreign businesses that might be said to have fueled the corrupted elite.