As Alexis Tsipras moves closer to winning power in Europe’s most indebted country, he’s trying to convince bond investors they have nothing to fear.
The 40-year-old leader of Greece’s biggest opposition party alarmed an entire continent at the height of the euro area crisis in 2012, when he came close to snatching an election victory on a promise to withdraw from the country’s bailout agreement. Now, his stance has become more conciliatory, as he pledges to keep the Greek budget balanced.
“We don’t want to return to deficits,” Tsipras told the Greek parliament in a debate last night. “We don’t want new borrowed money.”
Tsipras’s Syriza party has consolidated support among voters over the past two years by marrying this new-found budget commitment to its existing promise to roll back the austerity that has ravaged Greek lives the past four years. While many analysts question the arithmetic underlying that double pledge, few suggest Tsipras is concealing a plan to plunge his country back into financial chaos.
“If Syriza wins the elections then there might be maybe a short-term repricing in Greek assets, but I don’t think it’s going to be a long-lived weakness,” said Nicola Marinelli, who helps manage 110 million euros ($135 million) of assets at Pentalpha Capital Ltd in London. As long as the European Central Bank stands by, “everything will be all right for Greece independently of which government gets into power.”
Tsipras’s chance to seize power may come in February. That’s the deadline for Prime Minister Antonis Samaras to persuade 25 opposition lawmakers to support his nominee for president of the republic. If he falls short of the 180-vote super-majority required, Samaras will have to call an early parliamentary election. Syriza, which won last May’s European election in Greece, has led in every poll since then.
A central plank of Tsipras’s plan to keep both voters and the market onside is a pledge to honor all Greece’s commitments to private investors.
“The debt owed by the private sector doesn’t come into the issue of the negotiation,” John Milios, Syriza’s head of economic policy, said in an interview.
Instead, Tsipras aims to persuade Greece’s official creditors to accept a writedown on their holdings in order to bring the government’s debt down to a sustainable level.
“They’ll tell us it can’t be done,” Milios, a 62-year-old professor of political economy at the National Technical University in Athens, said. “There used to be a no-bailout clause in the European Union. It didn’t need 10 years for that to fall, it took 10 days.”
Miranda Xafa, a former International Monetary Fund board member who now runs a consultancy in Athens, said there’s no way that Tsipras can keep both voters and investors happy.
“The problem with their agenda is that no one is willing to fund it,” Xafa said. “So they will either have to postpone their plans to spend much more money, or leave the euro.”
Investors’ concerns about Greece have edged upwards since the spread against 10-year German bunds touched a four-year low of 418 basis points in June. The risk premium ended last week at 645 points. Ireland’s spread has fallen by almost half since then to just 60 basis points.
Still, even Greece is a far cry from the 3,530 basis points, or 35.3 percent a year, in additional yield investors were demanding to hold Greek paper instead of German debt in March 2012.
Officials in Brussels and Berlin are confident that financial reality will persuade Tsipras to bow to the requirements of euro membership, a European Union official said. In fact, Tsipras might even be able to achieve more than Samaras in terms of taxing the rich, the official said.
The German government has no contingency plan to respond to a Syriza government because it expects Tsipras to accept the status quo, a Berlin-based official said. Greece is a signatory to EU legislation budget discipline, leaving Syriza little room for maneuver anyway, the official said.
Indeed, a person familiar with Syriza’s plans said their public rhetoric is geared toward building support among voters and shouldn’t be seen as a concrete guide to their policy program. All three officials asked not to be named because Syriza’s plans are sensitive.
Before entering parliament, Tsipras worked as a civil engineer, but he was always involved in politics, opposing the market economy and pushing for greater equality. In a 2008 interview with a student magazine, he said he admired Chairman Mao’s political writing and that he thought the idea behind China’s Cultural Revolution was very important.
“There was a huge lack of freedom in communist regimes, but at least they had humanity at the center of their thinking,” he said in that interview.
Greek voters have become accustomed to abrupt reversals from their leaders. Samaras opposed Greece’s first bailout before changing his mind when he became prime minister. Pasok, the current junior coalition partner, came to power in 1981, promising to lead Greece out of the EU and ended up joining the euro.
Executives in Greece are more concerned about working within a consistent policy framework than the question of who runs the government.
“Risky and long-term investments in sectors like the exploration of Greek natural resources require consensus in policy,” said Mathios Rigas, Chief Executive Officer of Energean SA, Greece’s only hydrocarbon producer and explorer. “This is the only way to remove concerns from potential investors for the benefit of the Greek economy.”
With the money he plans to wring out of the ECB, Greece’s euro-area partners, and rich Greeks who’ve so far remained beyond the reach of Samaras’s attempts to increase tax revenue, Tsipras has promised a social spending program of about 11.5 billion euros, or almost 6 percent of Greek gross domestic product, which will alleviate the pain caused by austerity and boost growth.
“It would be a catastrophe for the whole euro zone for there to be a debt default of any member country,” Milios said. “So we’re not talking about war, we’re talking about negotiation. And that could take a long time.”
(by Nikos Chrysoloras, Marcus Bensasson & Antonis Galanopoulos, Bloomberg)