Author & Contributor
Photo Source: American Enterprise Institute
All of us know how it feels to wake up after a long night of partying. At the party, there were no problems, just showing off, a lot of talking and finding new friends. Suddenly, the party is over; Monday again, we have to start working.
Tsipras will probably feel the same way right now. The show is over.
One week after he got elected to be Greece’s new prime minister, there is a lot of work to do. The past week was more a mix between celebrating and promising. Within a few days, he lost the trust from various European countries as well as from his own citizens. Right after his election, he didn’t hide any emotions. He promised to end and cancel cooperations with central banks, the European Monetary Fund (EMF) as well as various creditors, including one of the biggest; Germany. He promised to reemploy thousands of civil workers and to enforce a debt cut. These are very strong words. Causing a lot of concerns in the EU but also, on the other side, making him very popular in Greece. However, Greece still depends on the support of various European Union member states. That’s why Greece made a fast turnaround the last days and tried to calm down. The new financial minister “Giannis Varoufakis” qualified most of those statements in a recent interview with the “Financial Times”. Indeed, the European countries have a quite strong leverage against the Greek government. For example, the ECB may actually do not accept Greek government bonds as collateral if the country doesn’t cooperate within the supporting programs. However, this is exactly what Tsipras has announced and promised. Without the government bonds as a security, Greek banks won’t be able to refinance with the ECB. The new government realized that they have to offer something to find a solution and avoid a bankrupt. Therefore, finance Minister Varoufakis recently made three very specific proposals:
First, he wants to turn the debts into new indexed bonds, with an interest rate determined by economic growth. This means, if the economic growth will be strong, interests will rise as well, if Greece will grow slower, interests decrease.
Second, he wants to convert the Greek bonds in eternal bonds. This means that no payment of debts will be made. The repayment will be interests only. Of course, this will give Greece some time to breath. Currently, markets believe that Greece has to repay the bonds within the next years, which leads to a strong reduction of new credit offers and financial opportunities. However, it is questionable whether the ECB accepts such a proposal. Furthermore, the Greek finance minister has promised drastic measures against tax dodgers. He wants wealthy Greeks, which have hided from the Treasury so far, paying their tax debts including fines. Actually, that promise was made several times by the Greek government during the last few years. Maybe this time, conditions are more favourable for the Government as there are only a few contacts with the old elites, which lowers their major influence. But even this is not a guaranteed recipe of success. Experts claim that the tax administration is as inefficient as ever before and do not expect big outcomes. Comparing the statements from the Greek finance minister with those made initially by Mr. Tsipras, it seems that he talked a lot in the beginning in order to become more popular. The recent change and also the commitments by the finance department disappointed a lot of Greeks. But on the other hand, it seems that they understood that there is just one way to get out of the crisis: Open communication to all member states to find an acceptable solution which will ensure economic recovery in Greek. It is foreseeable that the proposals made by Greek government are only the beginning of a long negotiation poker. Alexis Tsipras arrived in the hard reality of Europe’s financial crisis and will give up many of his first day promises.
Party is over and now a lot of hard work needs to be put for both the national and international interest.