Nicolas Maduro’s socialist government lost out in congressional elections in Venezuela, Argentina has a new center-right president, and Tsipras’ domestic political dominance seems lately very uncertain. According to recent polls, Syriza is polling at around 18 percent, down from the 36 percent of the vote they received in last September’s elections, and is now neck-and-neck with the conservatives. For those who believe that a new crisis is coming to Athens, don’t panic. This time is different. Last summer’s political turbulence has decisively weakened domestic political players to the point that they are, in fact, incapable of “negotiating” with the creditors for the terms of the program. The political system—deeply wounded, fragmented, and cash-strapped—cannot govern, thus disillusioned voters see no reason to care about politics. So no strikes, no reactions, no demonstrations, no repeat of summer 2015 is expected despite prospective deep cuts in pensions and a stubborn 25 percent unemployment rate.
However, believe it or not, 2016 will be the year of great transformation for the Greek economy. One way or another, banks will sell or subcontract the huge non-performing loans (NPLs) portfolio in their possession and that will ignite a big change. Banks will be liberated from the bad loans that are currently sterilizing the healthy part of private sector from cheap credit. But even more importantly, as a consequence, non-performing entrepreneurial loans will change hands and, consequently, that will shift the ownership of some of the biggest domestic companies to foreign hands. In particular, 2016 will be the year of NPLs and of the so-called “de-hellenization” of the better part of the Greek economy, as Greek banks—bought overnight by foreign investors at bargain prices—will lead the way for the sell-off of the Greek economy.
This has become an issue only lately as Kyriakos Mitsotakis, a skilled, modern, liberal and pro-European politician, has accused the maverick ex-finance minister Yannis Varoufakis of spending too much time indulging in rhetorical attacks on the four systemic Greek banks, linking them with the so-called domestic oligarchs that ruined the country. As a result, voters were led into tacitly allowing the banks’ sell-off to hedge funds. To make matters worse, as 2015 proved to be a financially disastrous year, the 2013 bank capitalization that drew on taxpayers’ money was almost completely consumed, leaving taxpayers to lose out on more than 20 billion euros. In other words, the government “resistance” against the creditors in 2015 has in fact amounted to a full surrender of the country both at the economic and the political front.
The government still has one card it is currently trying to play to justify the tough measures of the current program dictated by the creditors. It is called debt relief. But the creditors, with the Private Sector Involvement (PSI-2, the official “haircut” creditors had to accept) of the 2012-3 period, have already offered an unprecedented debt relief package to Greece, which could free the country from its debt chains and, accompanied by structural reforms, will go a long way to putting the economy back on a growth track. To understand this, one has to study debt rearrangement details and maturities, in particular, as well as interest payments over the future (see my previous blog post and an article I co-authored in October 2015). Of course, any further extension in maturities might help both the economy and the government in its effort to convince the voters that austerity is only a small price that the country has to pay to secure further debt relief to the benefit of future generations. The reality is that, sadly, although any extension of maturities is welcome, it will make little difference for the foreseeable future. Syriza will continue to pay the political cost of being unable to steer Greece through these uncharted waters of global economy. And the reason is that the government has run out of money as well as the tools and means needed to govern, as both state and private companies and economic resources are now increasingly in the hands of foreign players.