The Troika That Greece Should Really Fear

Greek Prime Minister Alexis Tsipras gives a news conference during the European Council summit at the European Union headquarters in Brussels on Feb. 12.

Photographer: John Thys/AFP via Getty Images

Syriza swept to power in Greece on an anti-austerity and reform platform. Their bogeyman during the campaign was the "troika" of the European Union, European Central Bank, and International Monetary Fund. The troika is the entity that comes to Athens to make sure Greece is complying with the terms of its bailout.

Since winning the election, Syriza leader Alexis Tsipras has declared an end to the troika and set about renegotiating Greece's international bailout.

While the negotiations are ongoing, there is another troika that Greece should fear.

There are three main risks to the Greek economy right now.

  • Continued negative growth: The latest data show that in the fourth quarter of 2014 the Greek economy shrunk 0.2 percent, against expectations of 0.4 percent growth.
  • Disastrous government revenue: Data released by the Greek Finance Ministry yesterday show that the January 2015 central government surplus came in at €367 million ($419 million), against expectations of €1.29 billion ($1.47 billion). This shortfall was driven almost entirely on the revenue side, with the Athens-based Finance Ministry blaming non-receipt of expected tax revenue.
  • Banking sector uncertainty: On Feb. 4 the ECB excluded Greek sovereign and sovereign guaranteed debt from its liquidity operations. That ban came into effect on Feb. 11, with the Greek banks switching to emergency liquidity assistance (ELA) at the central bank of Greece for their liquidity needs. In a worrying development, the ECB had to vote to extend the ceiling on ELA almost immediately.

The longer the Greek government spends on the renegotiation of its program, the worse each of the domestic troika of problems will become as political uncertainty continues.

If the Greek government makes the mistake of spending too much time on the bailout negotiations and not enough securing the domestic economy, it may risk comparisons to the great Greek general Pyrrhus, coming home with a victory to an economy that is beyond saving.

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