Alexis Tsipras is leading Greece to disaster — and he has just days to pull the country back from the brink.
It is three months since he forced a snap election and six weeks since he became prime minister. In that time, the Greek economy has nosedived. A tentative recovery has been stopped in its tracks: tax receipts fell more than €1 billion below target in December and January, the banks have been emptied of more than €20 billion of deposits, loan defaults have risen and investment has been put on hold. Any day now, the government will run out of money.
No one knows exactly when because Athens has refused to allow eurozone officials to inspect its books. Some officials suspect that even Yanis Varoufakis, Greece’s erratic finance minister, doesn’t know the true picture. Besides, his credibility is so badly damaged that his word is barely trusted.
The frustration felt across the eurozone was laid bare this week by Jeroen Dijsselbloem, the Dutch head of the eurogroup of eurozone finance ministers. On February 20, Greece thrashed out a deal with the eurozone that would allow its present bailout to be extended for four months. Since then, officials have been arguing about who would meet whom, where and on what terms. Technical work still hasn’t started. “It’s been a complete waste of time,” he said.
A list of proposed reforms sent by Mr Varoufakis to Mr Dijsselbloem was greeted with near-universal ridicule. Its most striking proposal was a plan to wire-tap tourists to uncover VAT cheats — this from a government that spent three years preparing for office and claimed that its top priority was fighting tax evasion by “oligarchs”. The list suggests a government out of its depth and already out of ideas.
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In fact, Athens has only one overriding idea: to force the eurozone to provide Greece with unconditional cash. At first, it hoped that the money would come directly or indirectly from the European Central Bank — until the ECB pointed out that it is prohibited by the European treaties from financing governments. Then it tried to persuade eurozone governments to drop their insistence on reforms in exchange for loans. Now it is making deals and immediately trying to unpick them, relying on deep textual analysis for evidence of “constructive ambiguity”.
As the clock ticks down to a Greek debt default, Athens seems to be counting on either the ECB or the eurogroup to blink. There’s a certain logic behind this game theory strategy: if Mr Tsipras can force the eurozone to hand over one unconditional euro, he will have changed the nature of the currency union. More euros will follow.
But this strategy has no chance of succeeding. A currency union between sovereign states can operate only on the basis of laws. Even if politicians were willing to cut deals, other agencies have little room for manoeuvre.
Far from being too tough on Greece, some central bankers worry that the ECB is already exceeding its mandate: they argue that the ECB should be ordering Greek banks to cut their holdings of Greek government debt and to raise capital, amid concerns about the damage that the economic crisis is inflicting on their liquidity and solvency ratios.
Similarly, the International Monetary Fund can’t disburse cash to Greece without an agreed bailout programme based on a credible debt sustainability analysis. After all, it is already lending Greece multiples of its formal quota — money borrowed from some of the poorest countries in the world. And if the IMF refuses to lend, what eurozone parliament will agree to hand out cash?
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Besides, the risks of ripping up the eurozone rulebook to help Greece may now outweigh the risks of allowing Greece to exit the eurozone. Back in 2012, the contagion risks of a Greek exit were clear, but this time, there is no sign of a spillover to Spain, Portugal and the Republic of Ireland. Instead, those former crisis countries are now among Europe’s fastest-growing, with falling unemployment, accelerating foreign investment and record low bond yields, helped by the timely launch of the ECB’s government bond-buying programme.
The market is putting no pressure on the eurozone to cut a deal with Greece at any price. Indeed, the market is more likely to react negatively to any deal that fuels support for radical leftist parties in other countries similar to Greece’s Syriza. After all, the economic consequences of radical leftist policies can be clearly seen not only in Greece but also in Venezuela, where Syriza has turned for inspiration and whose citizens have recently had to queue for lavatory paper.
That is not to say that anyone is complacent about the risks of a Greek euro exit, not least for Greece itself. No one can predict the nature of the political backlash across Europe that will result from the inevitable implosion of the Greek economy; no one wants to be confronted by a full-blown humanitarian crisis inside the European Union.
A Greek exit would pose huge challenges. Most eurozone policymakers are clinging to the hope that Athens will ultimately respect eurozone rules and remain in the currency union.
Yet this decision is now largely out of the eurozone’s hands. If Greece is to remain a member, one of two things needs to happen: either Mr Tsipras must repudiate many of his electoral promises; or Greece must repudiate Mr Tsipras. Right now, neither of those outcomes looks likely.
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Simon Nixon is chief European commentator at The Wall Street Journal. Twitter: @simon_nixon