The new year of 2016 is only days old but Greek Premier Alexis Tsipras began it the same way he did 2015: lying and reneging on his promises, world press reports say.
For Greece, 2016 Brings New Challenges
In the days ahead, the Greek government will begin another round of complex negotiations with its creditors and political parties on a new phase of economic reform.
At the center of the talks will be a plan to restructure the country’s pension system, a particularly sensitive issue given that pensions form one of the last social safety nets left standing in a country where at least a quarter of the active population is unemployed.
Though the risk of a Greek default or exit from the eurozone will be lower in 2016 than it was in 2015, the threat of social unrest and political volatility will loom large.
The Greek government is preparing for what is likely to be a difficult bargaining process both at home and abroad. Unemployment affects roughly 25 percent of Greece’s active population and over 50 percent of its youth, meaning entire families depend on the pensions that their elderly members receive to survive.
As a result, Greek administrations have historically been reluctant to implement structural reforms within the pension system.
But the government may no longer be able to avoid them. Greece’s foreign lenders are pressuring Prime Minister Alexis Tsipras’ administration to tackle the pension system head-on.
The country spends roughly 17 percent of its gross domestic product on pensions — the highest rate in the European Union — and with a shrinking workforce, low fertility rates, inefficient tax collection, funding shortfalls and legal loopholes, the system is no longer sustainable.
Athens’ creditors want the government to slash its spending by about 1.8 billion euros ($1.9 billion) this year. To that end, Greece is expected to present a formal plan by late January that details how it will go about meeting this target.
At that time, the lenders will assess the status of Greece’s bailout program and decide whether Athens qualifies for the next tranche of financial aid.
The Greek government hopes to gain approval for the reforms — and receive its funding — sometime in early February.
However, Athens will encounter several major obstacles in achieving its goals. At home, Tsipras holds a majority in the Greek Parliament by only three seats; even a small rebellion within the ruling coalition could topple the government.
Meanwhile, Tsipras must convince creditors abroad that Greece is making enough progress to receive the next injection of cash.
What Does 2016 Hold in Store for Greece?
Brookings Institution/Theodore Pelagidis
According to recent polls, Syriza is polling at around 18 percent, down from the 36 percent of the vote they received in last September’s elections, and is now neck-and-neck with the conservatives. For those who believe that a new crisis is coming to Athens, don’t panic.
This time is different. Last summer’s political turbulence has decisively weakened domestic political players to the point that they are, in fact, incapable of “negotiating” with the creditors for the terms of the program.
The political system—deeply wounded, fragmented, and cash-strapped—cannot govern, thus disillusioned voters see no reason to care about politics.
So no strikes, no reactions, no demonstrations, no repeat of summer 2015 is expected despite prospective deep cuts in pensions and a stubborn 25 percent unemployment rate.
However, believe it or not, 2016 will be the year of great transformation for the Greek economy. One way or another, banks will sell or subcontract the huge non-performing loans (NPLs) portfolio in their possession and that will ignite a big change.
Banks will be liberated from the bad loans that are currently sterilizing the healthy part of private sector from cheap credit.
But even more importantly, as a consequence, non-performing entrepreneurial loans will change hands and, consequently, that will shift the ownership of some of the biggest domestic companies to foreign hands.
In particular, 2016 will be the year of NPLs and of the so-called “de-hellenization” of the better part of the Greek economy, as Greek banks—bought overnight by foreign investors at bargain prices—will lead the way for the sell-off of the Greek economy.
This has become an issue only lately as Kyriakos Mitsotakis, a skilled, modern, liberal and pro-European politician, has accused the maverick ex-finance minister Yannis Varoufakis of spending too much time indulging in rhetorical attacks on the four systemic Greek banks, linking them with the so-called domestic oligarchs that ruined the country.
As a result, voters were led into tacitly allowing the banks’ sell-off to hedge funds. To make matters worse, as 2015 proved to be a financially disastrous year, the 2013 bank capitalization that drew on taxpayers’ money was almost completely consumed, leaving taxpayers to lose out on more than 20 billion euros.
Greece Must Stay on Track
Greece’s opposition parties are angry at the government, which is only natural. The same people who were putting up obstacles at every crucial crossroads are now asking for help. To be sure, I certainly don’t believe that the SYRIZA-led government deserves carte blanche to do whatever it wishes.
But let’s be honest here. At this point, there are two options: We can either do things fast, or run into a wall. History is full of surprises, both good and bad – although the former has become something of a rarity these days. What is important, of course, is that the country moves forward, steering away from the pitfalls.
Our politicians are well aware that in the age of the economic crisis and the memorandums, even the most ambitious statesmen can slip into the footnotes of history.
Still, some things get done. The caravan is moving ahead. Privatizations – which can lure capital and spur growth – are under way. Political officials may try to disguise their decisions with sentimental sound bites, but this is besides the point …
European leaders do not want to have to put up with another crisis this year. Should we clear these obstacles, we will finally find ourselves on the path to the holy grail: a debt settlement, benefits provided by the European Central Bank, and an improved investment climate.