Tsipras Bets He Can Keep EU Aid Flowing While Ending Austerity
Alexis Tsipras is betting he can have it all. The leader of Greece’s Syriza party aims to win over voters by promising an end to punishing austerity while keeping the European Union’s financial-aid flowing.
“We have no sense that European partners will follow this tactic of blackmail heard from some quarters and stop funding,” Tsipras, whose party is vying for first place in polls before June 17 elections, said in an interview in Athens yesterday with Bloomberg Television. “Something like that would be catastrophic not only for Greece but for the entire euro area.”
Tsipras’s pledge to abrogate the terms of the bailout amounts to a bet the EU will stop short of kicking Greece out of the 17-nation euro. The cuts required for 240 billion euros ($303 billion) of aid from the EU and the International Monetary Fund have deepened the worst recession since World War II. Greeks vote a second time in six weeks in three days after a May 6 ballot failed to yield a government.
Tsipras is “promising miracles,” Jacob Funk Kirkegaard, a research fellow at the Peterson Institute of International Economics in Washington, said in a telephone interview. “Things in Greece, economically and politically, can get a lot worse. That’s not something that’s very easy to sell to Greek voters but I think that’s the reality.”
While some euro-area leaders, such as Luxembourg Prime Minister Jean-Claude Juncker, have signaled their willingness to ease some conditions of the aid, policy makers have rejected suggestions that aid won’t be tied to tough conditions.
“Crises are seldom fair,” German Finance Minister Wolfgang Schaeuble told Stern magazine in comments published yesterday. “If the country wants to become competitive again, the minimum wage has to sink.”
Syriza was propelled to second place in the inconclusive May 6 vote. Most opinion polls show Syriza and New Democracy, which backs the bailout, running even for first place. According to the last opinion polls on June 1, neither has enough support at this point to rule alone.
Tsipras, 37, has said he’ll try to keep Greece in the euro while pledging to cancel austerity measures. Fitch Ratings said today that a Greek exit from the euro would have a “severe” indirect impact on banks throughout the euro area, requiring a “robust” response from policy makers to prevent contagion.
Investors will target debt-laden Italy, a Group of Eight country and the third-largest euro economy, if Greece is ejected from the currency, Tsipras said. “When you give a sign that a country can be led to hell, then they will rush to attack the next weak link, which is Italy.”
Tsipras’s view that Greece won’t be kicked out of the euro, membership of which is seen as irrevocable by its founding treaty, “is based on the analyses of the most credible European and international economists, cost-and-benefit analyses of one or the other scenario,” he said in response to a question on whether he has been in touch with any EU official. “Our conviction isn’t based on public relations or on some confirmations from politicians.”
A Syriza-led government would revoke all austerity measures that have deepened the economic slump and enact a plan for economic and social development, taxes on the wealthy, nationalize “and socialize” banks while seeking a renegotiation of the loan agreement.
“We have empty funds, public funds, bankrupt pension funds and a banking system hanging from a thread,” he said. “The most important thing right now is to restore a climate of confidence.”
Worried Greeks have accelerated bank withdrawals, two bankers familiar with the situation said, on concern the nation may move closer to abandoning the euro. The outflow is increasing the strain on a banking system that has suffered since the beginning of the crisis. An exit from the euro would cut lenders off from access to ECB funding.
Tsipras said he’ll argue for a European-wide deposit guarantee, if elected, at the EU summit on June 28.
“To stop these outflows, this hemorrhage from the financial system, it is imperative to have support from all political sides that we’re working to stabilize the Greek economy”, he said. “This scare-mongering on Greece leaving the euro must stop.”
Syriza’s unexpected gains in the May 6 election left New Democracy and Pasok, which supported the second international rescue in an interim government this year, two deputies short of the 151 seats needed for a majority in Parliament.
Syriza won 16.8 percent of the vote compared with New Democracy’s 18.9 percent. Under Greek election rules, the winning party gets an extra 50 seats in Parliament.
“It would be an incomprehensible, historical mistake today if European leaders could believe that a Europe without Greece could continue,” Tsipras said. “An EU without Greece would be a politically, economically and culturally crippled Union.”
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