Trying to stage a comeback in polls with elections coming, Greek Prime Minister and Radical Left SYRIZA leader Alexis Tsipras’ risky strategy of giving handouts and cutting taxes has run afoul of the country’s creditors.
The lenders, the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) put up a third bailout in the summer of 2015, for 86 billion euros ($96.63 billion) that came with more harsh austerity measures.
Tsipras swore to defy and reject those as well as another rescue package but surrendered after the ECB threatened to cut off liquidity, ending his gambit of warning he would take Greece out of the Eurozone unless he got his way.
Now, ahead of May 26 elections for Greek municipalities and the European Parliament and general elections later this year, he’s found himself far behind the party he unseated in 2015, the major opposition New Democracy.
Floundering in surveys, he has reverted to returning to pensioners a miniscule portion of what they lost in benefit cuts and is cutting taxes, leading the lenders to consider sanctions, the financial news agency Bloomberg said.
That would be for a potential breach of debt obligations over a proposal to lower its annual primary surplus, the news agency said, citing sources it didn’t identify. The government said it has surpassed a primary surplus requirement of 3.5 percent of Gross Domestic Product (GDP) after Tsipras said it was impossible.
He’s using part of that to fund handouts although the surplus doesn’t include interest on three bailouts of 326 billion euros ($366.28 billion,) the cost of running cities and towns and state enterprises, social security, some military costs and by withholding payments to people and businesses owed money by the state.
Bloomberg said the sources worry handouts could cut the surplus to 2.5 percent of GDP, a violation of the agreement Greece made and with lenders said to be anxious that with the end of the bailouts on Aug. 20, 2018 that Tsipras will revert to the same kind of wild spending and runaway patronage that got Greece into trouble.
Envoys from the lenders have been in Athens to review the country’s fiscal program and targets to insure they are met which otherwise could trigger more spending cuts automatically, what Tsipras is trying to avoid while still giving out money.
While the impact of the new fiscal targets still needs to be fully assessed, creditors are anticipating sanctioning Greece when the next debt decision is due in the fall, the sources were said to have reported. Elections must be held by October.
Possible sanctions could include withholding Greece’s share of ECB bond profits and not reimbursing the annual penalty the country pays on some loans, one of the people said but officials from the ECB and ESM wouldn’t comment, the report added.
Tsipras insisted that even with a lower primary surplus, Greece will meet its debt obligations by transferring 5.5 billion euros ($6.18 billion) from the state’s cash reserves into a guarantee to its creditors. That money came from the bailouts.