Rarely has a prime minister overseen so much financial destruction in so little time while tightening his grip on power.
After winning an election on a wave of populism in January, Greece’s Alexis Tsipras finds himself running a country in a state of economic emergency. His government rations money to the parts of society that need it most; bank stocks have collapsed more than 60 percent in three days; and some officials fret that Greece is still one accident away from leaving the euro.
And yet, Tsipras’s popularity remains unchallenged. While his critics say no one deserves more blame for playing a game of brinkmanship that he could never win, polls show his Coalition of the Radical Left, or Syriza, has as much as twice the support of its nearest rival.
One senior aide said his shift toward the center of the political spectrum makes him the only guarantor of stability ahead of another possible election in coming months.
“The only way he can survive politically is to move to the center-left, and the only moment he could do this is this very moment,” said Aristides Hatzis, professor of law and economics at the University of Athens. “Tsipras has to move forward to hold elections, come into collision with his party, escape the image of the ‘good kid’ and become a national leader.”
For Tsipras, the defining moment so far was his decision to keep Greece in the euro after six months of political chaos that pushed the country to the brink of financial collapse.
That move, made after an all-night European summit on July 12, required a U-turn to yield to the terms for another bailout, this time worth 86 billion euros ($94 billion). In doing so, he was left in charge of a country that had staved off collapse, but is now effectively in economic shock and facing further austerity.
Three weeks later, five Greek financial and government officials told Bloomberg how they are trying to put Greece’s finances back together, all of them speaking on condition of anonymity because the talks are confidential.
Their first task is to keep afloat an economy that’s still hemmed in by capital controls and reliant on a drip feed of liquidity for survival.
Officials, working with the country’s banks, must decide on an almost daily basis where cash is needed the most. Drugs, energy and food imports are generally given the highest priority. They then apply a sliding scale that runs down through capital equipment such as machinery and consumer goods like clothing and electronics.
All of this is strangling a nation that until the end of 2014 harbored hopes of exiting the bailout regimes first put in place in 2010. A Greek parliamentary committee expects the economy to shrink as much as 4 percent this year, and bankers are divided on whether the damage is permanent. Unemployment has been above 25 percent for almost three years.
As officials labor to keep the economy going, political infighting continues in the background. The deal with creditors prompted the communist and radical factions of Syriza to defect and wipe out Tsipras’s parliamentary majority.
Tsipras’s response will be to see them off at a party congress in September and then fight a snap election on an agenda of political stability that pledges to keep the country in the euro, a senior official in the administration said.
Among supporters, it plays into the narrative of the young firebrand leader as national savior.
“The Greek people have been looking at the negotiations more as a matter of foreign policy,” said Nikos Marantzidis, professor of political science at the University of Macedonia in Thessaloniki. “Whenever that is the case you have the so-called rallying behind the flag.”
As the dust settles on the most savage stage of the five-year Greek debt crisis, officials say they are mostly optimistic that Tsipras will do whatever he can to keep Greece in the euro.
That wasn’t always obvious. While the prime minister himself never openly questioned Greece’s place in the currency, he allowed former Finance Minister Yanis Varoufakis to sow doubt far and wide.
As the crisis came to a head in July, Varoufakis and Energy Minister Panagiotis Lafazanis openly discussed alternative payment systems with the rest of the cabinet. Varoufakis later claimed that the plan had been authorized by Tsipras so that the drachma could be reintroduced “at the drop of a hat.”
At one point, the central bank felt obliged to boost security at its vaults because of growing concern that some ministers might order a raid on reserves of euro banknotes, a person familiar with the matter said. It also sought legal advice on how to defend against switching to another currency, the person said.
“Tsipras had an alternative. It may have been a destructive alternative, but it was there: the alternative was to turn the country into Venezuela,” said Hatzis at Athens University. “The plans may have been proven ridiculous, but there were people discussing those plans, even himself.”
As Tsipras plots a new course without some of his old allies, success or failure will depend on his ability to recapitalize the banks and avert more economic chaos.
There are some signs of improvement. Greek lenders, kept afloat by the European Central Bank, have seen small deposit inflows for the first time in months after they reopened on July 20, one of the bankers said.
Officials are now working against the clock to get the banks recapitalized, with one executive warning that public opinion could swing against remaining in the euro if economic normalcy isn’t restored soon. For now, Greek support for keeping the currency remains strong.
The first step will require Greece and its creditors to agree on all the commitments it needs to meet for the third bailout in time to make a 3.2 billion-euro payment to the ECB on Aug. 20. Failure to do so would require a further bridging loan from European governments, which would come with even more conditions.
After bailout funds have been released, a stress test will be carried out under the auspices of the ECB by the end of October, paving the way for the recapitalization of lenders by mid-December, one banker said.
Both the government and its creditors agree depositors mustn’t have to foot any bill for a rescue, known as a “bail in” and deployed in Cyprus, nor should levies be imposed on savings, the official added.
“No matter how popular Tsipras is, there is no way he will not take a big hit by the fact that Greece will continue to be in crisis through 2016,” said Hatzis. “The line between being popular and finding yourself becoming the sitting duck is very thin.”