Tsipras, a Political Master

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Europe and the world should be taking a moment and reflect on the political mastery of Alexis Tsipras of Greece. In less than a year, Mr. Tsipras won two general elections, won a referendum and implemented contradictory policies, all this by changing his political standing and under terrible domestic and economic conditions. Aside from political ideology, Alexis Tsipras is undeniably one of the most talented European politicians. However has his mastery of politics translated into sound governing skills?

Early 2015, most Europeans, including a some Greek citizens, had never heard of Alexis Tsipras. The 41 year old tieless politician finds his political ideology in extreme left affiliated at first to the Communist Party. His political house is centered in the extreme left side of the political spectrum. After years of internal evolution in the Greek lefts, he then became the leader of the exteme-left wing party, Syriza (which means Coalition of the Radical Left) and was elected at the helm of Greece in February 2015. This was the beginning of his true political exposition.

Chapter 1: His election in February 2015 marked the end of the decade long transfer of power between the two leading parties. Tsipras was elected based on a program of anti-austerity policies, fight for Greek interests before the Troika (ECB, IMF, and Commission), increase of minimum wages, restauration of state employees and increase of pensions. If European media were deeply skeptical about his rise and thought that he would not last a year, they have appeared to be wrong. Ensuing his election, Tspiras disappeared from European minds until the looming of the deadlines for debt repayments of the IMF and ECB.

Chapter 2: The second chapter of his reign started several weeks prior the eventual default 478861728of Greece for the repayment of a  €1.5 billion to the IMF on June 30th, and a second one to the ECB mid-2015. These negotiations at EU finance ministers level and EU leaders level were extremely tense as neither Tsipras nor his finance minister, Yanis Varoufakis, wanted to accept the deal put on the table by the Troika and Germany. At the last minute, PM Tsipras called for a referendum on July 5th asking Greeks to decide on their fate: voting yes to the deal implied more austerity measures; a no vote was a rejection of the deal and could lead to a Greek default and leaving the Eurozone, known as a Grexit. Not only did Tsipras organized the referendum without noticing his European partners, but he campaigned for the no vote.

Chapter 3: The no camp, or Oxi, won the referendum with 61.3% and Europe was expecting a progressive departure of Greece from the Eurozone. Even President Juncker of the European Commission asked for a report on how to accompany Greece outside the Euro area. Instead of using his domestic mandate, Tsipras fired his finance minister (officially he resigned desipte winning) and went back to the negotiation table

ATHENS, GREECE - 2015/06/29: The word 'OXI' (NO) written on a banner in front of the Greek parliament. Greeks demonstrate in Syntagma square in support to a 'NO' vote in the referendum that will take place on the 5th of July, whether to accept the new agreement between Greece and it creditors. (Photo by George Panagakis/Pacific Press/LightRocket via Getty Images)
ATHENS, GREECE – 2015/06/29: The word ‘OXI’ (NO) written on a banner in front of the Greek parliament. Greeks demonstrate in Syntagma square in support to a ‘NO’ vote in the referendum that will take place on the 5th of July, whether to accept the new agreement between Greece and it creditors. (Photo by George Panagakis/Pacific Press/LightRocket via Getty Images)

requesting the initial deal. Germany refused and France played an important role of holding together the parties and the negotiations alive. Ultimately, Greece agreed on a worst deal than previously offered and Tsipras implemented additional austerity measures and required reforms. The deal entailed the following aspects: raising the age for retirement; a VAT hike at 23% across sectors; privatization of key sectors of Greek economy; and removal of tax breaks for some Greek islands. These reforms would permit to unlock a third loan package of €86 billion until 2018.

Chapter 4: Tsipras agreed on the second deal, agreed at EU level on July 13th, which was worst than the initial offer, and brought it back home for a vote. The Greek Parliament voted and agreed on July 15th, on the bailout deal, which was approved with a 229-64 majority. However, Tsipras’ party, Syriza, seems to have lost some unity with 32 Syriza MPs defying their leader’s pleas and rejected the deal. Throughout July and August, Tsipras was facing serious political criticism and opposition by the members of his own party. Syriza was divided between a radical branch, led by Mr. Lafazanis, and a more centrist one counting Tsipras. The radical branch of Syriza had not accepted the political move by Tsipras to go against the popular vote of the referendum. “Mr Lafazanis’s supporters speak of an ‘ideological betrayal’ and ‘treachery’ by Mr Tsipras’s faction.”

Chapter 5: On August 20th, PM Tsipras announced his resignation and his candidacy for the next general election that would take place mid-September. His rationale was to get reelected without the radical branch of Syriza. His political gamble worked as he was reelected with 35.5% of the vote and was able to drop the hard-liners from his party. Syriza won 145 seats out of the 300 seats of the parliament, only four fewer than after the January elections. In order to assure a majority, Tsipras agreed on a coalition with right-wing party Independent Greeks (ANEL) with its leader Panos Kammenos. ANEL is an ultra-nationalist anti-immigrant party, often compared to UKIP in the United Kingdom. With this alliance, the Syriza-ANEL coalition offer the majority with 155 seats in the Parliament to Tsipras. Even President of the European Parliament, Martin Schulz, expressed his concerns directly to PM Tsipras about this political alliance.

Political Talent over Governing Skills?

In less than a year, PM Tsipras has demonstrated his political talent in remaining alive and electable despite party, domestic and European pressures all this under dire economic conditions and an unemployment level around 25%. If Tsipras proved to the world that he cannot lose an election, he needs to now tackle the true problems of Greece: crony capitalism, clientelism, systemic corruption, and implementing structural reforms of the economy and state. The country has been on life line for over 5 years, its intellectuals are fleeing away, higher education is barely financed and Greece cannot even protect its borders. Winning elections is one thing, implementing reforms and governing are another.

(Copyright 2015 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).
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It is Politics, Stupid!

CREDIT: ANADOLU AGENCY
CREDIT: ANADOLU AGENCY

“I really cannot remember, in all my time in European politics, whether I have come across a situation like this. This is really all about the European Union. If the EU is going to have any credible force, it is going to have to demonstrate it is capable of solving its own problems.” – President Martin Schulz on July 12th, 2015 during the Euro Summit Meeting

Forget about economics, finance, banking regulations, social welfare policies, debt forgiveness; the future of Greece solely depends on politics. “The answer [of endless negotiations on solving the Greek crisis these last five years] cannot be found in economics,” writes Yanis Varoufakis, the former Greek finance minister, “because it resides deep in Europe’s labyrinthine politics.” Greece’s destiny is a simple political question based on several concept: trust and confidence.

The Deal

After a week long of back and forth between Greece and the European capitals, Brussels is once again the siege of a Greek marathon. A meeting of the Eurogroup finance ministers started on Saturday, July 11th and ended the next day around 3pm. Ensuing it a general EU summit, with the 28 leaders, was supposed to take place, but was instead cancelled and transformed into a crisis summit of the 19 EU leaders of the Eurozone. The future of Greece as a member of the Eurozone was clearly on the line with a very reticent German team (Chancellor Merkel and her Finance Minister Wolfgang Schäuble proposing an eventual ‘temporary Grexit’).

As reported by the Financial Times, the finance minister negotiations, which were fruitless and tense, let the way to the EU leaders, whom could not do better considering Germany’s position. Until François Hollande, President of France, whom had been extremely active in advising, helping and defending Greece in the last mile, called for a meeting in Tusk’s office. Preisdent Tusk was reported saying “Sorry, but there is no way you are leaving this room” until a deal is reached.

Credit: Aris Messinis/Agence France-Presse — Getty Images
Credit: Aris Messinis/Agence France-Presse — Getty Images

Interestingly enough, Tsipras’ proposal prior the July 11th meeting included: raising the age for retirement; a VAT hike at 23% across sectors; privatization of key sectors of Greek economy; and removal of tax breaks for some Greek islands. These reforms would permit to unlock a third loan package of $59.6bn until 2018. Tsipras’ proposal was highly similar to the one offered by the international creditors. Even Jean-Claude Juncker during the meeting recognized the proposal brought by Tsipras as almost identical to the one put on the table by the creditors weeks earlier. And the President of European Parliament, Martin Schulz, called for avoiding a Grexit and find a solution.

Based on the deal reached on July 13th, the Greek Parliament voted and agreed on July 15th, on the bailout deal, which was approved with a 229-64 majority. However, Tsipras’ party, Syriza, seems to have lost some unity with 32 Syriza MPs defying their leader’s pleas and rejected the deal. Clearly the terms of the bailout are in direct contradiction with Syriza’s policies, beliefs, and promises, as well as sidelining the results of the referendum. These contradictions could push even further the political crisis in Greece and lead to yet another election during the summer.

Chancellor Merkel, the Finish government and others are not convinced about the proposal and especially Greece’s commitment. The Greek drama is taking more than a simple economic/financial turn, it is purely political. It appears that some EU Member States, like Germany, Finland, Slovakia and others, are more inclined to go after Greece and its leftwing government led by Alexis Tsipras, than finding a real deal that would help in the long term the country.

One core reason is trust, or at least ‘lack of trust.’ Some experts have argued that Tsipras was now on Merkel’s black list after his political coup, the referendum. Merkel and others EU leaders do not trust any longer Tsipras and his government. Or even has argued by Yanis Varoufakis, “based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.”

Death of the European Project?

The Greek file should be considered as an overall failure for the European ethos. Many economists, like Joseph Stiglitz, have been very critical of the negotiation process and the agreed deal. One of the most virulent denunciation of the deal was Paul Krugman, writing that “it’s [the deal] a grotesque betrayal of everything the European project was supposed to stand for.” Even the International Monetary Fund, a global advocate for austerity measures and straightjacket policies, has been critical of the dealbroken_euro_fit calling instead for a huge debt relief for Greece.

Last but not least, Nicolas Gros-Verheyde of Bruxelles2 wonders about a core question: “Is Europe becoming the sum of its egos?” The Greek file embodies more than solving an economic problem, it has become a vicious fight between powerful EU Member States. These egos are affecting their global visions and understandings of the core principles and values of the European endeavor. But right now, the EU is failing at this important crossroad. The EU cannot find a real solution on any major crisis from counterterrorism in Mali, to migration crisis in the Mediterranean, to Ukraine/Crimea, to the domestic rise of nationalism, and naturally Greece. Are politics killing the EU? It certainly looks like it.

(Copyright 2015 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).

Greece votes Oxi, Europe says Grexit

ATHENS, GREECE - 2015/06/29: The word 'OXI' (NO) written on a banner in front of the Greek parliament.  Greeks demonstrate in Syntagma square in support to a 'NO' vote in the referendum that will take place on the 5th of July, whether to accept the  new agreement between Greece and it creditors. (Photo by George Panagakis/Pacific Press/LightRocket via Getty Images)
ATHENS, GREECE – 2015/06/29: The word ‘OXI’ (NO) written on a banner in front of the Greek parliament. Greeks demonstrate in Syntagma square in support to a ‘NO’ vote in the referendum that will take place on the 5th of July, whether to accept the new agreement between Greece and it creditors. (Photo by George Panagakis/Pacific Press/LightRocket via Getty Images)

“All of us are responsible for the crisis and all of us have a responsibility to resolve it.” – President Donald Tusk, July 7th, 2015

Greek citizens voted in majority Oxi to the July 5th referendum. The question asked by the Tsipras government, which was campaigning for a ‘no’ vote, was yes or no to accepting a continuation of the bailout program with all the austerity measures coming with it (read here a previous analysis). The results were very clear throughout the country with 61.31% for the no vote and 38.69% for the yes vote (see here the map produced by the Gr20150711_woc001_0eek Ministry of Interior showing that the no vote won in each Greek region). Greek citizens felt that the best option – out of two bad – was to reject the terms of the bailout on the table. If for a day the discussion was about the meaning of the ‘no’ vote (is it against the EU, the Euro, or simply a desire to remain a member of the Eurozone), today’s reality is about the future of Greece as a member of the Eurozone. So where do Greece and the EU go from now on?

Negotiations and Survival

In less than two days, a succession of events has taken place. For over five years, it seems that the Greek file was dragging, it has certainly taken an all new meaning and urgency. Prior to the results, Chancellor Merkel of Germany was meeting her counterpart, President Hollande, in Paris in order to find a common ground. The day ensuing the political victory of the Tsipras government, the infamous Greek finance minister, Yanis Varoufakis, announced his resignation. Many advanced that Tsipras had to go in order to demonstrate to his European counterparts that Greece was serious in seeking for a viable option. Varoufakis had gone too far and had lost some of his support within the Eurogroup of finance ministers.

Then on Tuesday, an emergency summit meeting took place with no substantial results.

Credit: Yves Herman/Reuters
Credit: Yves Herman/Reuters

Tsipras was supposed to bring, as highly recommended by the French government, a new proposal. But the summit meeting failed as Athens did not provide an acceptable option. Tsipras has now until Thursday (as requested by Merkel) in order to present a new proposal to his creditors. A failure in finding an agreement could lead to “the bankruptcy of Greece” warned Donald Tusk, the president of the European Council, “and the insolvency of its banking system.” Tusk added that “tonight I [Donald Tusk] have to say it loud and clear — the final deadline ends this week.” On Sunday, as announced by the 19 eurozone countries on tuesday, the 28 EU leaders will be deciding on the future of Greece.

In addition, the New York Times reported that for the first time – at least publicly – the President of the Commission, Jean-Claude Juncker, has announced that he has “a Grexit scenario prepared in detail.” If a Grexit scenario is now on the table, Tsipras will be defending his case before the European Parliament on Wednesday morning.

Consequences of Staying in the Eurozone, or Leaving It?

In the middle of the negotiations and in finding a solution, a key player is the European Central Bank (ECB). Currently the ECB is the institution that is keeping the Greek banks alive by providing liquidity. Because today Greece is unable to borrow money on the international market and the Europeans are the one providing money to Greece in order to have its economy and banking systems going. The ECB will continue to do so if a deal is agreed. However, in the case of a break-up, the ECB will remain a central player as it will stop providing liquidity to Greece. In addition, even if Greece missed its first payment of July 1st to the International Monetary Fund of $1.8bn, the second deadline of July 20th to the ECB of $3.8bn will be key for Greece and the EU.

If Greece wants to stay in the Eurozone, they will have to implement a set of policy measures that will require: tax reforms; fixing the pension program, which will affect early retirement program; labor market practices. Once these are ongoing the international and european creditors will have to give meaningful debt relief.

In the case Greece decides to leave, or is expelled from the Eurozone, then it will have to introduce a new currency. The country will ultimately default on their debts, and will have to create its own economic agenda in order to lay down the foundation for future economic growth. This scenario will naturally require serious structural reforms.

If Size does not matter, Precedent does

The Greek case is not about the size of the Greek economy. In fact the Greek economy only represents 2% of the Eurozone GDP. So far it does not appear that a Greek default could take with it the whole Eurozone and send a massive shockwave throughout the global markets. No, the case of Greece is a matter, for the EU and its Member States, of establishing a precedent. Germany and other wealthy Eurozone members want to avoid such precedent, where a member state refuses to pay its debts and call for a national referendum in order to provide such country leverage at the European level. Chancellor Merkel was correct in claiming that Greece is a sovereign state and has the right to organize such a referendum, however what type of legitimacy does that provide the Tsipras government in coming back at the bargaining table?

The Greek referendum is national decision on a complex financial question. But the Greek referendum does not affect the decision of Greece’s creditors. If the vote empowers Tsipras domestically, it does not at the European level. Now, Tsipras has to navigate in these tumultuous waters of a domestic electorate, opposed to additional austerity, while providing a proposal acceptable to his creditors, most of them highly in favor of additional austerity measures. Tsipras seems to be facing a conundrum, either remaining in the Eurozone and what it entails, or leaving the Eurozone, and dealing with the consequences of a default.

In the mid-term, there are many technicalities that need to be figured out if Greece decided to leave the common currency. The legal baseline is the 1992 Maastricht Treaty,

Photograph by Federico Gambarini — picture-alliance/dpa/AP
Photograph by Federico Gambarini — picture-alliance/dpa/AP

which does not provide any information in order to leave the common currency. In the contemporary European history (aside from the collapse of Habsburg empire), there are no precedents, no rules and no plans in order to leave a common currency. But with a return of the Drachma, the real question for the Greek government will be about the exchange rate between the Drachma and the Euro as all Greek accounts are in Euros. At the end of the day, the Greek savings will be severely devaluated causing massive financial losses.

The Greek drama illustrates the complexity of the unfinished European construction. Since the Treaty of Maastricht of 1992 laying out the current foundations of the European Union, the Member States have avoided any decisions for furthering/deepening the integration process or completely loosening it. Today, if Greece is in such trouble, is certainly because of its domestic problems (high level of corruption and lack of structural reforms), but as well because of an integration à la carte of the Eurozone. At the end of the day, a Grexit or not is only a technicality. The real question is: will the Eurozone members be working once and for all on finalizing a fully integrated and functional Eurozone?

(Copyright 2015 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).

Grexit, Zombies and Back to the Future

grexit

With the looming Greek deadline, it is interesting to revisit an interview conduced back in 2011 about the future of Greece as a member of the Eurozone. Not surprisingly, not much as changed since then aside from the perpetual rotation of Prime Ministers unable to balance the debt, european and international pressures, and domestic forces.

In almost five years, the EU, the Eurozone and Greece are in the same situation that they initially were. Today Greece is on the verge of defaulting on its debt of €1.5 billion to the IMF on June 30th. Since the election of Prime Minister Alexis Tsipras, the fight between Greece and the Troika+Germany has been tense with no real solution (read a previous analysis on Syriza here). The bargaining process has brought the EU and Greece in front of a wall. The only difference between 2011 and 2015 is the acceptance of the concept of Grexit. In 2011, Grexit was only a word to express the unthinkable. In 2015, Grexit is an option.

Here is the interview of Dr. Lorca-Susino taken place in Miami in 2011:

“What makes a currency unique? The symbols, monuments, leaders figuring on the paper money, are exemplifications of the collective identity and shared culture. In the case of the Euro, as underlined by Gideon Rachman, the symbols on Euro’s coins and bills are fictitious.

Last week [September 15th, 2011], I ask one of my close friends, Dr. Maria Lorca-Susino, and also co-worker at the EU Center of Excellence at the University of Miami to grant me a little of her time for an interview on the future of the Euro and its impacts on the EU as whole. The fraternity among Europeans living abroad is such that she could not refuse. Dr. Lorca-Susino has emerged as one of the top thinkers on the Euro and recently published an outstanding book, The Euro in the 21st century, from the ashes of her dissertation. I had in mind to do the interview à la Financial Times, unfortunately neither lunch nor coffee were part of it.

Zombies have become a very trendy concept to use in International Relations and mass culture [it was the case in 2011 with all the movies, tv-shows and Drezner’s book Theories of International Politics and Zombies], and I could not resist on using it for this piece. Is Greece a zombie? Can a bite from Greece lead to contagion to the other members of the Eurozone? and ultimately to the European Union as a whole? Could it lead to the comeback of national currencies? Would a default of Greece be like a heat shot to a zombie? These were my general questions throughout our discussion.

I started straight with a large, contentious and complex question, “How do you see the future of the Euro?” As a true academic, she replied by “it depends,” and then claimed that it will be “without Greece.” Greece has been at the heart of a massive political storm in Europe for several reasons: first, Greece is seen by the Troika – EU, IMF, ECB – as not doing enough; second, Greece could be considered as a failed-state. The problem with Greece is that the Greek government is unable to raise money [this changed in 2014 in Greece], as opposed to be unwilling to. Furthermore, from an economic standpoint, the case of Greece is a problem of solvency – no more assets – as opposed to have a problem of liquidity, which is the case of the Italy.

Dr. Lorca-Susino underlined that the Eurozone without Greece is not a “big problem” as the Treaties have been already breached many times. The no bailout rule has been breached, so why would it be a problem to remove Greece for the Eurozone? At that time, I should have raised the fact that one of the problems is perhaps not political, but instead unethical. But even the notion of ethics on the Greek fiasco lost its value a long time ago, when the Greek government cooked the books. The fact is that Greece lied and did not report the “real” data concerning its deficit and debt. The expulsion of Greece from the Eurozone is not a question of economic weakness, as argued by Dr. Lorca-Susino, but instead a consequence of its dishonesty to the other Member States. The cover-up by the Greek government did put the entire system in jeopardy, as she recalled, but also limited the time for action or reaction of the other Member States in dealing with such crisis.

I, then, wondered about the need to restructure, redesign the architecture of the Eurozone. She replied very simply that, “the Eurozone has all the requirements. But the only problem is that they have not been respected.” Originally and “in good faith” – as underlined several times throughout our discussion – Member States were allowed to maintain their fiscal autonomy. She went on and argued that the “unwritten rule for this fiscal independence” was because of a shared belief that Member States were part of a so-called “gentlemen club.” In other words, Member States’ words were the only guarantee needed for a stable and safe economic climax within the Eurozone. Short-term breaching was permitted, as it was the case with France and Germany, as long as Member States readjusted their deficits.

What about a common EU fiscal system? “Fiscal unity is complicated,” argued Dr. Lorca-Susino, “because it would send the entire European political class to unemployment.” Her vision of the role of politicians is reduced to their abilities to make the budget in accordance with the country’s needs. Fiscal unity is not a fiscal question, but instead a political one. However, another problem would be to design a common European taxation system with all its complexity around the question of redistribution in accordance with national taxation and European needs. Fiscal unity would ultimately lead toward a federal state along the lines of the United States.

But, what is the role of the European public in all that? Have European citizens been removed from the equation? Since the beginning of the crisis in 2008, the European public, all across the Union, has been extremely critical and vocal of all the austerity measures undertaken, especially the ones implemented in Greece, Spain, Italy, Britain, and to some extent France. A large segment of Europeans see the European Union as the supra-entity forcing national governments to cut their budgets and ultimately weakening the power of the welfare state. Her answer, once more, was sharp and clear, “the Euro is like Bush! Everybody blames it!” Her argument is that European citizens truly believe that life post-Euro was better. To some extent, the economic rationale is valid, monetary autonomy. Furthermore, national governments have used the Euro as a shield in order to push unpopular national economic policies without affecting the electability of its political class.

On the international stage, the Euro has been used as an instrument from diversion especially in the US. On the money market, the Euro is not seen anymore as a strong, stable currency leading investors in buying massive amount of Swiss Franc with all the consequences it entails for the Swiss authorities.

To conclude this piece, I would emphasize two points: first, the Euro is far from being perfect, however, it has become an European scapegoat. At least, Member States can agree on something; second, as argued by Dr. Lorca-Susino, “Greece is not buyable as a country, as an economy.” Greece looks like a zombie. One of the problems with zombies is the difficulty to find a vaccine. “

0,,18530052_303,00Putting this interview in perspective and as a concluding remark, one should mention the call by Prime Minister Tsipras to put the decision in the hands of the Greeks by holding a referendum on July 5th. This fascinating political move by Tsipras put the Greeks in the driver seat. Tsipras and his finance minister, Yanis Varoufakis, are opposed to the terms of the new bailout. For instance, in his public address on June 26th, PM Tsipras said “After five months of tough negotiations, our partners ended up with a proposal in the form of an ultimatum,” with “new, unbearable measures,” which would force for additional cuts to pensions, salaries and tax increases. He added that “the goal of some of Greece’s partners is the humiliation of an entire nation.” It is the first time since the beginning of the eurozone crisis that a government is asking directly its citizenry to make a choice on their future.

In order to do so Tsipras had asked to his creditors and the Eurogroup to give a 5 days extension. The next day, June 27th, the finance ministers of the Eurogroup rejected Tsipras’ demand. Jeroen Dijsselbloem, the leader of the Eurogroup of eurozone finance ministers, told a news conference that “The Greek government has broken off the process. However regrettable, the program will expire on Tuesday night.” Ultimately, Greece seems on the verge to leave the Euro. A Grexit is now a reality.

This piece was initially published on Foreign Policy Association’s Blog on September 23rd, 2011 under the title of “Euro, Zombies, and Greece: A Discussion with Dr. Lorca-Susino”
(Copyright 2015 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).