SYRIZA’s economic agenda is still a work in progress, concerning the substance of its policy priorities and the coherence of communicating this to domestic and international audiences. Neither constituency is necessarily hearing the same message at present.
The party’s economic agenda in the making essentially focuses on two key policy priorities: Withdrawing from certain compliance requirements agreed with the Troika by the Samaras government; and agreeing debt restructuring among indebted euro area countries.
Offering a consistent and coherent agenda that defines post-memorandum fiscal and economic management in Greece is a tall order for any party in Greece. Prime Minister Antonis Samaras’ failed attempt to do so in October 2014 testifies to this. For its part, SYRIZA, the largest opposition party, is not prepared to continue the "extend and pretend” game prominent among other euro area governments.
Domestic and foreign critics of SYRIZA argue with various levels of intensity that its economic policy proposals risk turning the country into a European North Korea or a Venezuela. The hysteria witnessed during the past days is embarrassing and has reputational costs for the international standing of the country.
SYRIZA, or the Coalition of the Radical Left, claims to offer binary choices, consistent with its strategy of polarizing the electoral agenda under the headline ‘Memorandum or SYRIZA.’ It argues that the principle of ‘TINA politics’ (There Is No Alternative) is a non-starter after six years of recession and four years of austerity.
It’s worth taking a closer look at SYRIZA’s economic proposals while noting that over the past two plus years, it has softened its narrative. Its proposals focus on a number of parameters, whose adoption and implementation critically depend on European coalition partners.
These include:
Agreeing with Greece’s European creditors to write off at least half of the country’s debt
This demand is based on the assumption that Greece’s debt sustainability is neither established today nor feasible in the medium-term. Yet such a view of the country’s accumulated debt avalanche is not radical at all. It even squares with the International Monetary Fund’s interpretation of Greece’s debt sustainability. The Fund called for further debt restructuring by Greece’s European official lenders in 2014 (although it is not prepared to include itself in such a grand bargain). SYRIZA leader, Alexis Tsipras, has recently argued that the party would commit to repay IMF obligations.
An entirely different challenge for SYRIZA concerns holdout investors who own Greek foreign law denominated bonds and who did not participate in the private sector debt restructuring of early 2012. In the course of 2015, these foreign investors will be owed €460 million. This will quickly become a major conundrum for any SYRIZA-led government.
Negotiating additional restructuring with Greece’s European public lenders will also need to overcome the institutional hurdle that these lenders are currently senior to other creditors. The strength of the creditor–debtor relation is biased in favor of the former.
Debt restructuring with official lenders requires a coherent negotiating strategy, and, more importantly, coalition-building with European institutions. While the former is currently difficult to identify in SYRIZA’s electoral programme, the latter is completely absent.
SYRIZA does not have an institutional partner with whom it could join forces, be that the European Council, the EFSF, the ESM, the European Commission or – most importantly – the ECB.
Introducing GDP-linked bonds as part of its debt restructuring proposals
These would give bondholders an economic incentive to benefit from a prospective recovery of Greece’s real economy. What remains unclear to date from SYRIZA are answers to questions such as how these bonds would be issued, traded and who the targeted investors would be?
In theory, GDP-linked bonds would affect annual interest payments and thus the level of pre-agreed primary budget surpluses necessary to repay international creditors. Interest payments on various loans and sovereign debt currently require about 4% of Greece’s annual GDP.
Withdrawing from various compliance requirements agreed by the Troika with Athens
One such requirement concerns the arrangement to run high primary budget surpluses before debt is serviced. SYRIZA argues that this conditionality crowds out public investment. Such a position hardly marks a fundamental policy shift that should send shivers down the spine of European institutions and investors. Rather, it is shared by many international economists, who are not cheerleaders of SYRIZA.
If SYRIZA is to formulate a coherent economic to-do list for its first 100 days in office then it must also include a workable plan for after withdrawing from existing compliance requirements and proposing debt restructuring. Put otherwise, what would the next steps look like once SYRIZA has formed a (coalition) government? Crucially, time will be scarce after the elections.
Some elements of such a road map have been articulated with the demand for a international debt relief conference that should begin with Greece, but then include Cyprus, Portugal, Spain and Italy. The idea here is that other indebted euro area countries can be rallied to the common cause similar to the 1953 compromise that restructured 50% of (West) Germany’s debt.
But such a policy proposal needs more clarity in legal detail, coordination and decision-making procedures, as well as the identification of the counterparty stakeholders. What appears clearer is that such an alliance would pit the European periphery against the Eurozone’s remaining triple A economies.
However, SYRIZA fundamentally lacks institutional coalition partners at the European level to address, let alone start implementing, such ambitious and conflict-prone policy proposals. Seeking alliances with opposition parties such as Podemos in Spain and Die Linke in Germany is not a prescription for policy consensus if you should find yourself in government after January 25.
These challenges and open questions are just some of the numerous expectations and demands that SYRIZA is facing daily from a diverse and polarized electorate on the domestic stage, and, now, from international observers. Preparing for government may turn out to be the easier part of this challenge.
- Jens Bastian is a German independent economic analyst and financial consultant for South East Europe. He was a member of the European Commission’s Task Force for Greece between September 2011 and September 2013. He also worked for the European Agency for Reconstruction, Alpha Bank in Athens and was a visiting fellow at St Antony's College in Oxford University.
Source: Euro Insight
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