Feeling the pinch.

Photographer: Angelos Tzortzinis/AFP/Getty Images

Tsipras Needs to Rethink His Timetable

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.”
Read More.
a | A

Less than a month into its tenure, the Greek government is finding that it will be very difficult to fulfill electoral promises to rapidly change the country’s economic management and its relations with its European partners.

The approach taken by Alexis Tsipras, Greece's charismatic new prime minister, and his finance minister, Yanis Varoufakis, an economist with strong communication skills, has been bolstered by broad recognition that their nation is unlikely to regain economic dynamism and financial stability without a revision of its existing mix of austerity, structural reform and debt relief.

Nonetheless, Greece has already had to learn unpleasant lessons that complicate its efforts and fuel public confrontation with some of its European partners. These setbacks, however, provide important insights into how Syriza could evolve its strategy to meet its objectives in a way that also benefits the euro zone as a whole.

Greece's Fiscal Odyssey

Despite their initial strong opposition to continuing talks with the so-called Troika of negotiating partners -- the European Central Bank, European Commission and International Monetary Fund -– officials belonging to Tsipras' Syriza party found that they had no choice but to do so. They engaged in detailed technical discussions over the weekend with the hope of making it easier to find agreement when euro zone finance ministers met again in Brussels on Monday in an increasingly urgent effort to secure bridge financing for Greece.

Monday’s meeting ended in an impasse as Greek officials rejected demands that they stick to the previous government's austerity programs as a condition for continued aid. In the process, Greece was exposed to five inconvenient realities that will remain relevant in the months to come should the country wish to remain in the euro zone.

First, there is no escaping the Troika. As much as the Greek government would prefer it otherwise, the Troika will remain its main interlocutor.

Second, complex politics tends to trump economics in the euro zone. Mindful of their domestic constituencies, and also of other peripheral economies that haven't yet restored debt sustainability, Europe's leaders have no patience for grand bargains or any other sweeping changes of policy. They are particularly uninterested in entertaining any approach that would require them to go back to national parliaments to alter the bailout package for Greece.

Third, Greece is discovering that it won't necessarily find natural allies among other euro-zone peripheral nations in its standoff with the core countries. New alliances that cut across the creditor/debtor divide have formed: After years of difficult austerity programs that are now yielding some initial benefits, countries such as Ireland and Portugal resist the notion of allowing Greece to receive a different -- and more lenient -- treatment from creditors.

Fourth, most of Greece’s euro-zone partners are uncomfortable that the new government in Athens appears to feel so relaxed about reneging on commitments made by its predecessor. A renegotiation of the terms of previous assistance is seen as potentially opening a Pandora’s Box that would undermine complicated national and regional interactions.

Fifth, while the often acrimonious discussions continue, Greece has no easy way to stop the outflow of bank deposits. The longer this persists, the greater the risk that the government and its European partners could lose control of the country’s destiny within the euro zone.

The bottom line for the Syriza government is clear. The road ahead will be tough. It will involve difficult negotiations and, if it wishes for Greece to remain in the Eurozone, quite a few compromises. In the process, it won't be able to deliver quickly and fully on its electoral commitments, even though 20,000 Greeks took to the streets of Athens this weekend to support the government’s approach vis-à-vis its European partners.

Tsipras and Varoufakis have no viable choice but to be patient, and to opt for a sequential rather than simultaneous approach to meet their objectives.

If the consensus among European leaders is to have Greece remain as an economically dynamic and financially viable member of the euro area, sentiment will eventually turn in favor of a fundamental reset of the Greek program, not least because economic logic will ultimately prevail.

In the meantime, Greece's leaders should make sure they communicate more reasonable expectations to their citizens. Rhetoric and unrealistic deadlines should be replaced by frankness and feasible timelines. And in their negotiations with Greece's euro-zone partners, they should seek constructive compromises that are building blocks rather than grand bargains. Inevitably they will need to settle initially for small steps as a means of eventually reaching their ultimate objective of rehabilitating their country's economy.

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