ATHENS: Just a year into an international bailout aimed at rescuing Greece from bankruptcy, the government faces a tough task tackling debt restructuring talk, internal discontent with austerity and an EU/IMF inspection visit.
In exchange for the 110 billion-euro bailout granted by the EU and the IMF, Athens has agreed major reforms including an overhaul of its pension system and labour laws, but it is struggling to collect taxes and overcome a deep recession.
Bleak macroeconomic data and increasing sentiment that Greece will have to extend debt maturities or impose a loss on investors highlight persistent risks to the three-year reform plan meant to pull the country out of a severe debt crisis.
Opinion polls show the government’s support ratings slipping and labour unions are threatening to step up strikes.
Following are the main political risks ahead:
Austerity fatigue
The socialist government – elected on a platform to help the poor and tax the rich just before the debt crisis exploded at the end of 2009 – is facing mounting discontent among ruling party members and voters over austerity policies.
Over the past year, Greece has slashed public spending, cut salaries and hiked taxes to bring the budget deficit from 15.4 per cent in 2009 to about 10.5 per cent in 2010 and has agreed further belt-tightening for 2011 and the years to come.
The austerity has dragged the economy deeper into recession, blowing out unemployment to record levels while the cost of living keeps increasing in the wake of high energy costs and lack of competitiveness, exerting extra pressure on ordinary Greeks.
Socialist lawmakers have toed the party line for one year, despite their misgivings about austerity. But the government had to withdraw last month a draft law on gaming liberalising after some of its MPs opposed it, in a rare example of rebellion against policies required by the EU and the IMF.
A row over privatisations after the last EU/IMF visit to Greece in February, with some ministers publicly criticising a target agreed by the Finance Ministry, and delays in drafting a detailed 2011-2015 fiscal plan show that uneasiness over austerity has reached the cabinet itself.
Health Minister Andreas Loverdos, a favourite of EU and IMF officials for having pushed through pension and health reforms, urged his colleagues earlier this month to step up efforts, saying he was not prepared to remain in a government of “opaque and contradictory policies”.
What to watch:
- Details of the mid-term fiscal and privatisation plans, to be unveiled mid-May: Will the government make tough austerity cuts? Will some ministers resist cuts? Will EU and IMF officials, on an inspection visit to Athens, ask for more belt-tightening?
- How will lawmakers react when the government presents the plan to parliament, also mid-May? Will they agree to the additional savings required to meet the bailout targets? Will there be more cases of rebellion against austerity plans?
- Will the ruling Socialists’ poll ratings continue to drop and will that affect the resolve for reforms? Their lead in opinion polls over their conservative opposition has shrunk to its narrowest since their October 2009 election.
- Will unemployment keep rising and inflation remain high, increasing austerity fatigue? Upcoming macroeconomic data includes: May 12 – February unemployment; May 13 – Q1 GDP flash estimate.
- Tourism forecasts for any signs of recovery in this key sector for the economy, which employs about one in five Greeks. Greece expects a surge in arrivals but little revenue growth.
Restructuring talk
One consequence of austerity fatigue is that even among the ranks of the ruling socialist PASOK party, some lawmakers are pushing for a restructuring, saying the EU/IMF-backed policies are counter-productive.
The government of Prime Minister George Papandreou says a restructuring would have catastrophic consequences for the country’s banks, pension funds and economy but opinion polls show most Greeks believe it will happen eventually.
Despite daily denials in EU capitals, a debt restructuring seems increasingly inevitable to analysts and some euro zone officials, in particular in Germany.
What to watch:
- Will EU and IMF inspectors conclude that Greece’s debt is sustainable?
- Will any of the key players in Greece and abroad change their positions on restructuring? Can Papandreou keep a lid on his party and cabinet on this?
- Will Greece get a further extension of repayment on its EU/IMF bailout and a lower rate after the EU already sweetened the deal in March? Will its euro zone partners, pressed by voters increasingly wary of subsidising Greek finances, agree to that? Under what conditions?
- Will Athens fall further in the major rating agencies’ charts after being cut to junk by all three? The agencies have warned more downgrades could come.
- Will Greece manage to keep its yield in T-bill auctions at about the same rate as its bailout? It has had to pay an increasing premium over the past months. The next T-bill issue is planned on May 17.
Social unrest, guerillas
Unions have threatened to crank up protests, saying austerity hurts the poor most. Tens of thousands took to the streets of Athens on Feb. 23 in the biggest march since riots in 2008 that brought the country to a standstill for weeks.
Fewer people joined a protest march during a 24-hour strike on May 11 but dozens of youths hurling stones clashed with police as the strike brought Athens to a halt. One protester was seriously injured and needed brain surgery.
Workers in sectors ranging from public transport to pharmacists and lawyers regularly take to the streets. The strikes are unlikely to shake the government but anger could escalate if it fails to show that sacrifices are bearing fruit.
Guerrilla group attacks also worry the government, which does not want to be seen as lax on security, especially since its image abroad is crucial to the important tourism sector.
In a new form of protest, Greeks increasingly refuse to pay highway tolls and public transport fares, in what is dubbed the “I don’t pay” movement.
What to watch:
- Will more Greeks take to the streets as unemployment keeps rising? If they do, will the government stick to its austerity drive, as it has done over the past year, or could it be tempted to soften its stance?
- Whether the protester who was seriously injured becomes a rallying point for further protests.
- Rolling strikes by the powerful GENOP union at Greece’s biggest electricity producer PPC, due to start a week before the 2011-2015 fiscal plan is presented to parliament.
- Will more people join the “I don’t pay” movement?
- Any guerrilla group attack, after the Conspiracy of Fire Cells sent parcel bombs to embassies in November.
- The government’s struggle with illegal immigration.
