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What now for Greece – Tsipras and the ‘Extend & Pretend’ loan

By 23rd September 2015 News No Comments

Tsipras held onto his position of Greek prime minister after defeating his main opponent Memorakis at the snap election on Sunday September 20. Greek voters-1.6 million fewer than earlier in 2015- voted in support of Tsipras’ and his Syriza party’s plans who, after a drastic u-turn are now pro austerity and have accepted the Troikas bail out plans. Does this mean Greece are now on course for recovery and a Greek exit unlikely?

Europe has been somewhat distracted with the Syrian immigration crisis and talks of a ‘brexit’ have put Greece and it’s bailout programme somewhat off the radar. Significant problems remain and when analysing the terms of the bailout it seems the successful appointment of Tsipras has removed only 1 set of risks facing Greek return to economic growth. The agreement signed in August is up for review in November and there are 4 key areas which still haven’t been reformed.

1: Pension reform is a major worry for Tsipras and is likely to cause the most upset amongst Greek population.
2: The IMF want a bigger recapitalisation of banks than Greece has planned for to protect the downside future risks.
3: Although there has been an increase in the tax bill they are still 11.9% below the target and current levels of government spending are unattainable in the long run
4: The IMF want ‘explicit and concrete debt relief from other official creditors’ before they will release their bailout funding.

When these factors are combined with the significantly harsh austerity measures already in place- small business’ must pre pay tax on forecasted 2016 profits, households must pay taxes on non performing apartments and shops, VAT hikes and pension cuts (potentially Merkels influence) to name a few- it is clear to see that the Greek people are the ones taking the brunt of the bailout.

So why was Tsipras reinstated? The main reason is seen to be that he was most likely to stick to and implement his 3 pledges plan. He pledged to combat the following key areas:
1. Further negotiations with the Troika- the deal isn’t over and set in stone yet however the agreement that ‘the Greek government must agree with Troika on all actions relevant for the achievement of the objectives of the memorandum of understanding’ suggests bartering room is small
2. Debt relief will come soon- less austerity will come and boost demand of investors. A harsh austerity of 3.5% of GDP by 2018 has already been signed, again suggesting that a promise of lightening austerity is questionable.
3. Deal with the oligarchs- the Greek oligarchs are seemingly in bed with the troika and during 2015 were using their media channels and political agents to highlight this support. Turning against the oligarchs has now been made more complicated with the disbanding of the SDOE so again Tsipras may have to find an alternative solution.

It is clear that Greece are still in substantial difficulty. The bailout currently stands at approximately €86bn and could easily get bigger. Is Tsipras the man to find a solution with his hands seemingly tied? I fear not.