Editor's Note: Greece is a country in crisis. Facing financial, political and social uncertainty, Greece's ruling Syriza party has cut a deal with the European Union which should keep the Greek economy afloat at least for the time being. But European institutions and prominent member countries such as Germany are near the end of their patience, and it is far from certain that the conditions of the deal will be followed through by the Greek side. The situation is precarious, and it is highly possible that the agreement will collapse. Stratfor is logging the latest developments in this crisis update.
Greek Elections Worry Lenders: Sept. 2
The Greek electoral campaign began only a few days ago, but Greek political parties are already signaling that the next government in Athens will try to modify the terms of the recently reached bailout agreement. In the meantime, opinion polls consistently suggest that former Prime Minister Alexis Tsipras will have to form an alliance with one or more parties if he wants to be reelected on Sept. 20. Greece's creditors have so far remained quiet because they do not want to be accused of interfering with the electoral campaign, but they are starting to make preparations for the likely case that coalition talks drag for weeks.
When Tsipras announced his resignation, Eurogroup officials were confident that Athens would honor its bailout promises, for the simple reason that most political parties in Greece support the agreement. While this is true, creditors were probably not counting on the fact that the campaign would force parties to try to differentiate from one other by making their own proposals on the bailout.
In recent days, Tsipras' Syriza party said it would sell only half of the state assets earmarked for privatization according to the bailout agreement, and the conservative New Democracy party said it would not support a controversial tax on Greek farmers. On Sept. 2, Syriza said it would also abolish a tax on private education, which the party approved only a few weeks ago. While it is common for political parties around the world to break some of their campaign promises after being elected, the main contenders in the Greek election are making it abundantly clear that they do not plan to adhere to every single clause of the current deal.
In addition, opinion polls show that Syriza is losing support. Though Tsipras is still the most popular politician in Greece, the gap between him and the New Democracy candidate is shrinking. The Greek constitution awards bonus seats to the party that wins the election, which means that even a slim victory would put Tsipras in an advantageous position to form a government. But he will still need allies, won through what would probably be long and complex coalition talks. Syriza is focused on attacking New Democracy, a possible admonition that it will have to negotiate with smaller forces such as centrist To Potami and center-left Panhellenic Socialist Movement. Further clouding the issue, opinion polls show that a significant number of Greek voters are undecided, which increases the uncertainty about the vote's final result.
This combination — parties that propose to change the terms of the bailout and the prospect of long coalition talks — is making the creditors nervous. The Eurogroup will meet on Sept. 12 to debate the next steps in the Greek bailout. The creditors are supposed to assess the evolution of the Greek program in October, but, with an electoral campaign in September and coalition talks in early October, Athens is unlikely to introduce any meaningful economic reforms before the review. As a result, the lenders could decide to split the next tranche of the bailout (3 billion euros, or roughly $3.3 billion) into smaller tranches linked to more modest reforms.
This should not necessarily be a terrible problem for Greece: After making huge debt repayments to the European Central Bank in July and August, Athens has a relatively light debt repayment schedule between September and November. From a purely financial point of view, Athens can afford a delay in the disbursement of the next tranche of its bailout. The problem is mostly political, though the bailout agreement is fragile and its success far from certain.
Northern European countries have so far remained quiet on the matter, but conservative forces in Germany, the Netherlands, Finland and others will not tolerate indefinite delays in the implementation of economic reforms in Greece. This will create new conflict before the end of the year, as northern European leaders face off against Greek politicians trying to slow the pace of reform.