Greeks Backing Tsipras With Votes But Not CashMarcus Bensasson
Greek voters gave Alexis Tsipras’s Syriza party a mandate to force a new deal from the rest of the euro area. Without the backing of savers, he’ll struggle to deliver.
As their prime minister went toe-to-toe with the German government over the terms of a new aid package, Greeks yanked their cash from the banking system, some delayed tax payments and, by putting off spending and investing in the run-up to the election, they tipped the economy back toward recession. The financial squeeze leaves Tsipras little room to maneuver in the face of German demands.
Tsipras’s finance chief, Yanis Varoufakis, heads to Brussels on Friday to try and broker a deal to shield Greece from default with Germany demanding firmer commitments to austerity even after the premier abandoned his opposition to extending the existing loan accord.
“While Greek voters support Syriza and its program, according to polls, they are not betting their money on it,” Christian Schulz, an economist at Berenberg Bank in London, said in a note to clients. “Deposit outflows could make the banking system illiquid any day now and delayed tax payments could starve the government of cash as early as March.”
The contradiction shows the stresses in Tsipras’s position: while Greeks may want the prime minister to change the direction of European economic policy, they can also gauge the risks involved in his brinkmanship. Financial logic dictates that savers shield themselves from the threat to the banking system.
Uncertainty over the outcome of Tsipras’s dispute with euro-area member states has triggered deposit withdrawals of about 20 billion euros ($23 billion) since December. To replace those deposits, banks need to borrow from the European Central Bank and officials in Frankfurt are keeping Greece on a tight rein.
The central bank on Wednesday increased the pool of emergency cash Greek banks can draw on by 3.3 billion euros to 68.3 billion euros. That amount fell short of the 10 billion-euro increase Greece had requested, keeping the heat on Tsipras to quickly reach a political agreement with the euro area, according to Greek daily Kathimerini.
If Tsipras doesn’t accept a deal from the euro area this week, the ECB’s supervisory arm may tell Greek banks to reduce their holdings of government debt.
To compound the problems, tax revenue in January was about 1 billion euros below the target set in the 2015 budget and the economy shrank 0.2 percent in the fourth quarter as the previous government’s grip on power unraveled.
“Greece is hemorrhaging from the revenue perspective,” Malta’s finance minister, Edward Scicluna, said in an interview. “They are pinned to the wall.”
Since winning election on Jan. 25, Tsipras and Varoufakis have also abandoned their demand for a writedown on Greek debt, pushed back the timetable for raising the minimum wage, and decided against blackballing the international auditors keeping tabs on the government.
At the start of the week, Varoufakis was trying to win easier fiscal targets, offering to deliver a budget surplus before interest payments equal to 1.5 percent of gross domestic product. That’s less than half the target set in the country’s bailout program.
In his letter requesting the extension of the funding backstop, Varoufakis said that he would accept the financial and procedural conditions of the existing deal but signaled he wanted negotiations on other elements.
Germany said Greece will still have to go further.
“The letter doesn’t meet the criteria agreed upon in the euro group on Monday,” German Finance Ministry Spokesman Martin Jaeger said in an e-mailed statement. “In truth, it aims at bridge financing without meeting the requirements of the program.”