Tsipras’ Gamble

The Risky Road to Stability

Tispras resigns AFP PHOTO ANGELOS TZORTZINIS
Alexis Tsipras' latest throw of the dice:
  • Why it matters

    Why it matters

    Greece needs political stability so that its economy can recover from the uncertainty of the past few months.

  • Facts

    Facts

    • Greek Prime Minister, Alexis Tsipras, resigned on Thursday, which is likely to prompt snap elections on September 20.
    • The far-left of his Syriza party formed a separate parliamentary group on Friday, calling themselves Popular Unity.
    • Syriza is currently polling 33-34 percent and is likely to win the election but not get an absolute majority.
  • Audio

    Audio

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Just when Europe thought the Greek crisis was over, its youthful prime minister, Alexis Tsipras, has managed to reboot the drama, by resigning.

His call for new elections came on the same day Athens received its first tranche of the third bailout, finally giving the country some economic breathing room. The €13 billion, or $14.7 billion, transferred on Thursday let Greece repay €3.2 billion to the European Central Bank, avoiding default.

That money had barely arrived when Mr. Tsipras announced he was calling new elections to clean the political slate and hopefully stock his leftist coalition with more moderate members willing to approve privatizations and new austerity measures.

With snap elections most likely to be held on September 20, the country is now entering a month of political turmoil and uncertainty.

With his party formally splitting on Friday morning, the battle lines in the coming election will be between those who accept and those who reject the bailout.

The 41-year-old Mr. Tsipras, whose laft-wing Syriza party came to power in January on a pledge to end austerity, has since been forced to accept a harsh program of reforms in return for a €86 billion bailout over the next three years.

Mr. Tsipras only managed to get parliamentary approval for the bailout by relying on the opposition. Of his 149 Syriza lawmakers, 43 did not back him.

The expectation initially was that Mr. Tsipras would call a confidence vote in parliament and then step down. Instead, he surprised many by handing his resignation to President Prokopis Pavlopoulos the minute the bailout was secured.

Announcing his decision on Greek television on Thursday night, Mr. Tsipras said that he felt he no longer had a mandate.

“The political mandate of the January 25 elections has exhausted its limits and now the Greek people have to have their say,” he said.

“I want to be honest with you. We did not achieve the agreement we expected before the January elections.”

Mr. Tsipras’ move means that he can avoid months, if not years, of battling party hardliners and having to rely on the opposition, including the center-right New Democracy, center-left PASOK and new centrist pro-European party To Potami, to implement the bailout terms.

His popularity is high and Syriza is polling at 33-34 percent, though that could change once new polling accounts for the split of his party Friday morning.

“The political mandate of the January 25 elections has exhausted its limits and now the Greek people have to have their say.”

Alexis Tsipras, Greek Prime Minister

If that margin is maintained, it would mean that Syriza would again by far be the biggest political party, but not big enough to govern alone.

Its current coalition partners, the Independent Greeks, are unlikely to return to parliament, and Mr. Tsipras may have to seek a new alliance, probably the new center-left party, To Potami.

Going to the polls now allows him to take full benefit of his current popularity, which only grew as the tiny nation attempted, without success, to defy its larger lenders and demand a writeoff of the country’s massive debts.

Although he backed down in the end and accepted the lenders’ latest offer, which prescribes more austerity for Greek citizens, he is benefiting from defending Greek national pride. But as the austerity reforms begin to be felt by the population, that popularity could nosedive.

“He is aware social unrest will grow in the next months due to new austerity measures,” said Dimitris Rapidis, director of Bridging Europe, an Athens-based think tank.

“He remains popular because other political leaders are unpopular and because there is no alternative policy for Greece to exit the crisis for the moment, other than rescue packages,” Mr. Rapidis told Handelsblatt Global Edition.

Many Greeks still support Mr. Tsipras even though he capitulated to the lenders at the July 12 E.U. summit. That marked a huge U-turn, not only on election promises but also on the results of a referendum he had held just a week earlier.

In that vote, Greeks voted overwhelmingly to reject the lenders’ bailout terms.

However, Mr. Tsipras, staring into the abyss of a Grexit from the euro zone, decided he had to relent after all.

Most Greeks shared this view, feeling that in the end the risks of an exit from the euro zone were too high. For many of his compatriots, Mr. Tsipras had fought a good fight, even if it was one he was bound to loose.

His decision at the summit, however, led to the departure of his controversial finance minister, Yanis Varoufakis.

Since then Mr. Varoufakis has voted against his friend and former boss as parliament approved a series of “prior actions,” the reforms required before the bailout could be approved by the lenders – the European Union, the European Central Bank and the International Monetary Fund.

Mr. Varoufakis was joining around 40 other rebels, who have refused to back their prime minister.

Many of them have now decided to break away from the party, in a much anticipated split in Syriza. On Friday, 25 members of the party’s hardline Left Platform, led by former energy minister, Panagiotis Lafazanis, announced they were forming a new parliamentary group, called Popular Unity.

They will now run an anti-bailout and probably anti-euro election campaign. There is no reliable polling yet on what level of support the group has.

By ridding Syriza of the hardliners, Mr. Tsipras will hope to return to parliament with a more moderate party, and with lawmakers who will implement the bailout.

“By resigning and forcing early elections, Tsipras is taking a gamble: that his popularity and the dismayed state of the opposition will allow him to minimize the damage from the upcoming Syriza split,” Wolfgango Piccoli, director of Teneo Intelligence, wrote in a note on Thursday.

“Tsipras’ decision will be the ultimate signpost of whether his ‘turn to the center’ and the transformation of Syriza (or what is left of it) into a social-democratic party is a reality or just an illusion.”

“We might say that it’s a ‘controlled’ risk,” said Mr. Rapidis. “Tsipras is trying to reinvent himself as leader of the center-left, not only left. He is confident he can win, even with weaker electoral support.”

 

What Greece gets-01

 

However, in the immediate term, his move will make things less stable.

The Greek constitution stipulates that the president ask the other parties to try to form a government, something that is unlikely given the current make-up of parliament.

On Friday morning, President Pavlopoulos formally asked the leader of the second largest party, New Democracy, Vangelis Meimarakis, to try to form a new administration.

This charade will play out for quite a few days, with each party being given three days to try to form a government, before an election is officially called.

Meanwhile, as the country endures yet another election campaign, the new president of the Supreme Court, Vasiliki Thanou-Christofili, is likely to be made a caretaker prime minister. Although he is a well-known bailout critic, his role will be just to run the country’s day-to-day affairs.

“New elections can make it easier for Tsipras to do what it takes to keep Greece in the euro.”

Holger Schmieding,, chief economist, Berenberg Bank

As such, the implementation of the bailout conditions could be delayed for a month, something that may push back the first review by creditors, now slated for October.

The news of the latest political drama in Athens has caused some concern.

The political vacuum is “risky for the economy and the financial markets,” said Marcel Fratzscher, head of the German Institute for Economic Research (DIW). “It causes extreme uncertainty, which is poisonous for businesses and investors and makes the economy even more unstable in the short term,” he told Handelsblatt.

“The Greek prime minister Tsipras’s move to step down and call snap early elections on 20 September could elevate program implementation concerns and potentially puts future official sector disbursements at risk,” said credit rating service Moody’s.

However on Friday an E.U. official said that the political events in Athens should not change the bailout deal.

“This was really an expected step and for many people a desired step to get to a clearer structure in the Greek government,” Thomas Wieser, the head of the Euro Working Group which prepares decisions for meetings of euro zone finance ministers, told Austrian broadcaster ORF. “In October we have a meeting about a possible debt relief and [after the September 20 election] we hope for further progress of the program.”

Greece is still being kept on a tight leash by its lenders. It will have to pass the review before it can get any more of the bailout, which means assuring the lenders that it is serious about implementation.

And as banks await recapitalization, there are still capital controls in place, though they were eased somewhat this week by the Greek finance minister, Euclid Tsakalotos.

The country is now condemned to political limbo until the election.

“Near term, the looming election makes it more difficult to fully implement the bailout deal which the Greek parliament had approved last Friday,” wrote Holger Schmieding, chief economist at Hamburg-based Berenberg bank. “Medium-term, new elections can make it easier for Tsipras to do what it takes to keep Greece in the euro.”

“We can only hope that the impending instability of elections might just lead to the desired calm,” wrote Nikos Konstandaras, in Athens daily Kathimerini.

Mr. Konstandaras is skeptical about whether this move will finally give Greeks some stability, and is highly critical of Mr. Tsipras’ latest gamble.

“Anyone who believes political stability will be achieved only by repeated throws of the dice has not understood anything from the economy’s woes over the past months.”

 

Siobhán Dowling covers European politics for Handelsblatt Global Edition. To contact the author: dowling@handelsblatt.com

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