Lay off the Germans.

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Tsipras Lays Out Part of the Road Map for Greece

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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Alexis Tsipras didn't disappoint in his first parliamentary speech as prime minister of Greece yesterday. He mixed fiery rhetoric with defiance and emotional nationalistic language, reaffirming his government's rejection of the country's international bailout programs. His address shed light on a way forward for Greece, as well as the many obstacles to progress. He also took unnecessary risks. Specifically:

Greece’s Fiscal Odyssey

  1. Tsipras's carefully crafted speech contained a case-by-case examination of Greece’s domestic challenges while showing that these are inextricably connected to equally urgent collective European problems. Finding the right balance between the two will be critical to maintaining financial order in Greece, improving economic prospects and keeping the country within the euro zone.
  2. On the surface, Tsipras may appear to have outlined an unworkable attempt to combine two mutually exclusive issues. That's not necessarily so. Moreover, this dual focus is one that many regional and multilateral efforts continuously try to implement, with varying degrees of success.
  3. Tsipras was right to say that Greek society is reaching the limits of its tolerance for a persistently disappointing economy, alarmingly high unemployment and the unending sense of impending financial catastrophe. He is also correct that the solution will be found in recasting austerity measures, deepening structural reforms, mobilizing immediate bridge financing and securing debt relief.
  4.  In his commentary on these four requirements for a positive outcome, the prime minister provided some apt insights and a few incorrect ones, too. The critical tasks will be to moderate austerity, shifting the burden away from the poor and toward the better-off segments of society, including the rich, high-level politicians and top government officials. Greece will also need to fight corruption and deepen reforms that fundamentally revamp the county’s growth and employment engines; put in place external bridge funding for the next few weeks and reduce debt and debt servicing in an orderly manner.
  5.  The newly elected government still has far to go before it can translate talk into a comprehensive medium-term economic program that improves the well-being of its citizens. This won’t succeed without the support of European partners, including Germany and the European Central Bank, as well as technical and financial assistance from the International Monetary Fund.
  6.  To enable the transformation of ad hoc measures into a comprehensive program, the government would be well advised to focus on broad economic principles in its negotiation with its creditors. An initial framework approach based on growth, jobs and debt sustainability stands a better chance of securing the needed collaboration. It should also recognize that the Greek problem cannot be solved in isolation from its regional dimensions within the euro zone.
  7.  The Greek government would be better served if it ended its very public, repeated bashing of Germany. This is not the time for Greece to attack one of its largest creditors, and the most influential one. Nor is it productive to start seeking war repatriations from Germany, as Tsipras did, thus opening old wounds.
  8.  The more Greece engages in such public bashing, the greater the likelihood that any domestic political gains would be quickly offset by a reduction in the amount of time the government has to gain full control of the economy and its financial situation. Even if this approach restores their “dignity,” most Greeks aren't naïve about the potential risks. They know that confrontation and finger-pointing will complicate the mobilization of the bridge financing that Greece desperately needs. These tensions would also accelerate the outflows of deposits by residents who are rightly worried that worsening relations with Germany would end up affecting the value of their savings. That would make the next steps of Greece’s (already complicated) recovery even more difficult.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mohamed A. El-Erian at melerian@bloomberg.net

To contact the editor on this story:
Max Berley at mberley@bloomberg.net