Key to a Greek Deal Lies With the People
Most scenarios facing Greece are bleak. The country could default, introduce capital controls, forcibly convert savers’ deposits into bank capital, quit the euro and so forth.
But there is still a chance that things will end up relatively O.K. All those who care about Greece, starting with Prime Minister Alexis Tsipras, need to work hard on the least bad path forward.
This will require Mr. Tsipras not only to eat his words, but also to call a new election. The timing is tough, given a series of payments Athens needs to make to the International Monetary Fund and the European Central Bank in the next three months — but just doable.
The essential first step is for Greece to agree on a short-term deal with its creditors: to unlock 7.2 billion euros, or about $7.9 billion, worth of loans and avoid a bankruptcy that will probably otherwise occur next month. Given that the two sides are still far apart, this won’t be easy. On the other hand, Mr. Tsipras says he is hopeful about a deal — so maybe that indicates he is finally ready to make concessions.
The most important decision Athens needs to make is on pensions. The Greek system is unsustainable, mostly because of a large number of exemptions that allow people to take pensions long before the official retirement age. The creditors must not give ground on this point.
On the other hand, the eurozone and the I.M.F. should be prepared to compromise on labor reform. While they are right to insist on Greece’s not rolling back changes that have improved competitiveness, there is no need to dismantle yet more protection for workers.
Assuming such a short-term deal can be done, three questions would need answering. Would Mr. Tsipras be able to get his radical-left Syriza party to support the deal? How would Athens be financed while it worked through the summer on a longer-term agreement with its creditors? And would Greece and its creditors be prepared to agree to a multiyear deal that would require yet more reforms and probably over €50 billion in new loans?
Calling a second election would be the best way of answering these questions. It would be a way for Mr. Tsipras to kick out the hard-liners in his party. By securing a mandate from the Greek people to negotiate a new long-term bailout program, it would also give the creditors more confidence that Athens would follow through on its commitments. That would, in turn, make it easier to get money flowing now and in the future.
Unless Mr. Tsipras goes back to the Greek people, it will be hard for the creditors to trust anything he promises. After the last four months of dispiriting talks, they will worry that he would just take the money and fail to implement the program.
Eurozone governments, led by Germany, will struggle to persuade their parliaments to authorize an additional €50 billion-plus bailout for Greece, thinking they will be pouring good money after bad. The I.M.F. will also be reluctant to play a role; but if it doesn’t, it certainly won’t be possible to get the German Parliament on board.
A new election, in which Mr. Tsipras told the Greek people that they would have to make compromises to save the nation, would change all that. Given that they want to stay in the euro and that the opposition is in disarray, the prime minister would be well placed to win a majority.
The best timing for a second election would probably be in July — after a short-term deal was secured but before negotiation on the long-term program began in earnest.
Under this scenario, Mr. Tsipras would agree to some unpopular measures now and push them through Parliament. This would provoke some of his hard-liners to rebel, meaning that he might need the support of the opposition to carry the day.
The creditors would release the €7.2 billion left in the current bailout program. Because this wouldn’t be quite enough to see Greece through the summer, the E.C.B. would also let the country’s banks buy more treasury bills from the government.
Mr. Tsipras would then call the election. Because it would be held less than a year after January’s election, under Greek law he would be allowed to pick which candidates should run from his own party. He could therefore kick out the rebels, who would presumably form their own far-left party.
Following a second election, negotiations on a new bailout program could be completed. Given that Mr. Tsipras would be backed by a more moderate group of lawmakers, the creditors would not only be willing to lend more money in return for reforms, they would also agree to some relief on the country’s huge debts, probably by extending the current interest rate holiday and the period over which loans must be repaid.
Such a scenario may seem like a fairy tale. But it is one of the few that doesn’t end in a disaster.
Hugo Dixon is a freelance columnist and the author of “The In/Out Question: Why Britain Should Stay in the EU and Fight to Make It Better.”
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