ATHENS – In his first day in office, Greece’s new Prime Minister and New Democracy leader Kyriakos Mitsotakis’ hope to have the country’s European creditors rework brutal austerity measures that came with bailouts was rejected.
Not long after Mitsotakis was sworn in after beating the then-ruling Radical Left SYRIZA of former Premier Alexis Tsipras in snap elections, Eurozone officials meeting in Brussels said that Greece’s new government would have to hit targets under reforms accepted by Tsipras to get a third rescue package in 2015 for 86 billion euros ($96.32 billion.)
“Commitments are commitments, and if we break them, credibility is the first thing to fall apart. That brings about a lack of confidence and investment,” Mario Centeno, the Eurogroup President, told reporters after the meeting.
The influential Eurogroup comprises informal meetings of the finance ministers of the 28 countries using the euro as a currency and an integral part of the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM.)
Three international bailouts of 326 billion euros ($365.14 billion) that began in 2010 in a bid to prop up a Greek economy undercut by generations of wild spending and runaway patronage expired on Aug. 20, 2018.
But Greece still hasn’t been able to make a full return to markets and must meet fiscal targets to avoid triggering automatic spending cuts, with Mitsotakis pledging tax cuts and new terms with the lenders.
That was made perhaps mathematically impossible after Tsipras, in his waning days, went on a rampage of handouts in the form of pension bonuses and tax cuts – after slashing benefits and raising taxes – in a failed bid to win re-election.
It was a costly ploy, the Bank of Greece said, siphoning off a big chunk of a larger-than-expected primary surplus amounting to 1 percent of the country’s Gross Domestic Product (GDP) of 178.53 billion euros ($200.3 billion.)
The Eurozone finance chiefs said agreed targets wouldn’t be changed, leaving Mitsotakis little wiggle room to make good on his campaign pledges. The terms set a requirement of a primary surplus of 3.5 percent of GDP that has limited spending and, said critics, holding Klaus Regling, head of the euro area rescue fund and lead Greek bailout creditor, said the high surplus target remains a key condition.
“It’s very hard to see how debt sustainability can be achieved without it,” he said. “The 3.5% surplus is a cornerstone of the program. It was a cornerstone of the program from the beginning.”
Mitsotakis said he wants to cut through the notorious Greek bureaucracy to lure foreign investors stymied by SYRIZA but has run head-on into the fiscal reality of a debt exceeding 180 percent of GDP and 45 percent of banks portfolios weighed down by bad loans.
Those include 250 million euros ($280.01 million) owed by New Democracy and its former coalition partner, the now-defunct PASOK Socialists, with the bank officers who okayed the loans being given immunity from prosecution.
“The main take-away is that New Democracy’s government will be the first one-party government in Greece after nearly ten years,” said Spyridoula Tzima, a senior financial analyst at Global Sovereign Ratings. “Mitsotakis (has) a strong mandate to implement his policy agenda.”
In the election, Mitsotakis’ center-right New Democracy party won 39.8% of the votes and 158 seats in the 300-member parliament, a comfortable majority.
“The people gave us a strong mandate to change Greece, and we will honor that commandment in full,” Mitsotakis said after his swearing-in ceremony. “We will make the start today with hard work, with full confidence in our ability to respond to the circumstances.”
Hundreds of conservative supporters braved the searing summer heat to greet him outside the Prime Minister’s official residence, chanting: “There his is! There he is! The Prime Minister!”
(Material from the Associated Press was used in this report)