Time for Greece’s Alexis Tsipras to keep his nerve in debt battle

February 21, 2015
Greek PM Tsipras attends a cabinet meeting at the parliament building in Athens

Greek PM Tsipras attends a cabinet meeting at the parliament building in Athens, Feb 21, 2015. REUTERS/Kostas Tsironis

Alexis Tsipras must keep his nerve. The new Greek prime minister has crossed a Rubicon in asking for an extension to the country’s hated bailout programme while abandoning many election promises. Tsipras should realise there is now no turning back. But he can snatch victory from defeat if he embraces radical reforms with vigour.

Tsipras blinked on Friday night when it became clear that a bank run was gathering pace and capital controls would need to be imposed within days unless he did a deal with his euro zone creditors. The government itself would have gone bust in weeks. The misery inflicted on an already suffering people would have been terrible.

The Greek prime minister has had to accept virtually everything his creditors, led by Germany, demanded. However, Athens did secure a potentially important concession: it will be able to propose its own list of reforms.

On the other hand, Tsipras has had to swallow much bitter medicine. Not only has he had to ask for an extension of the programme with monitoring by the unpopular European Commission, European Central Bank and International Monetary Fund. He has had to promise not to roll back the reforms introduced by previous governments or introduce any controversial measures of his own during the four-month period when he will conduct negotiations on a new long-term deal.

The U-turn will infuriate the powerful hard-left faction of Tsipras’ own Syriza party. But it is in the interests of the Greek people.

Tsipras now has to present his own list of reforms by Monday evening. He must resist any temptation to come up with half-hearted proposals that might appease his extremist colleagues.

Instead, Athens should propose radical reforms that the previous conservative-led government was too conflicted to embrace. It should surprise its euro zone partners with its zeal and so help to restore their trust, which has been shot to bits as a result of Syriza’s bizarre negotiating tactics over the past month.

Tsipras has long said he wants to combat tax evasion, corruption and special privileges, as well as rein in the oligarchs who control swaths of the economy and stifle enterprise. Now is his chance to prove he means business.

Top of Athens’ list should be creating a genuinely independent tax authority. The last government, led by Antonis Samaras, sacked the authority’s boss. Buttressing it with strong legal safeguards would show that Tsipras was serious about tackling evasion, one of Greece’s deepest problems.

This reform could be accompanied by offering a tax amnesty: anybody who owned up to undeclared income would pay a lower tax rate; but those who failed to and were subsequently found out would be hit with the full tax plus penalties.

The prime minister should also promise to remove tax and social security privileges enjoyed by the rich. For example, judges, generals and senior civil servants should have to wait for their pensions as long as ordinary people.

Similarly, the Greek Orthodox church should lose its exemptions from the country’s unpopular property tax. Nor should the government continue to pay for priests’ pensions and salaries. The church should offer to fund them itself.

Tsipras should also revive an idea, nixed by Samaras, to tax the country’s super-rich ship owners. It is astonishing they still largely slip through the tax net.

Next on Athens’ list should be liberalising markets, such as auditing, retailing and telecoms, which are still gummed up by restrictive practices. This would attract investment and give consumers a better deal. One measure that could grab the headlines would be to free up milk prices.

Tsipras should also set up a “bad bank” along the lines of what Spain and Ireland have done successfully. Hiving off non-performing loans wouldn’t just free the banks to provide credit to the economy. It could also help clear up corruption, as many of the bad loans are provided to oligarchs who are clever at pressuring the banks not to foreclose on them.

There is understandably some fear that a bad bank could end up as a back-door way to help corrupt businesses, by writing down their loans while letting their current owners stay in control. But if the organisation was set up with strong and independent governance, this should not be a risk. On such a basis, the euro zone should be willing to release some of the money it has just clawed back from the country’s bank bailout fund to finance a bad bank.

Greece’s creditors have the country on a short leash. They haven’t said how they will provide Athens with the money to stop it going bust next month. They have also dangled the possibility of relaxing the punishing fiscal austerity, but haven’t said by how much.

If Tsipras can surprise his euro zone partners with radical reforms, they will be more willing to find Athens the cash to avoid bankruptcy – probably by letting it sell more short-term treasury bills to its banks. They will be more likely to relax the fiscal squeeze, so allowing the government to fund some of its more pressing anti-poverty policies. They will also be more amenable to relieving Greece’s vast debt burden, an idea currently on the back burner.

It won’t be easy for Tsipras to do all this, both because of his far-left colleagues and vested interests that support his party. But he is popular enough to do this especially if he secures a new mandate with a referendum or a second election. Now is the time to break with factions and side decisively with the Greek people.

This item has been corrected in paragraph 13 to reflect that ship owners pay some taxes.

4 comments

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Sorry, Hugo, but Tsipras is a “green foot” to understand public policy economics. Worse yet for him, he started like with a bravado that alienated the other Europeans who did not want a featherweight to tell the heavyweights in the EU what to do. Plus he promised too much, and bragged to provide relief from austerity right away, but now his finance minister with a foolish bravura changed tune. He now claims that the election campaign promises would be fulfilled in the 4 years ahead – until the next election. The Greeks therefore would have to keep the mouths open for 4 years until the candies of Tsipras and Varoufakis drop in – if ever!

Tsipras claimed that he “won the battle, but lost the war!” That is an oxymoron because he actually has lost the battle too, but he is embarrass to admit defeat. Ironically, he promised the Greeks that he would force the EU to give Greece “hair-cuts,” but none is coming. That fits perfectly a Greek proverb for neophytes barbers who have to learn the hard way the art of haircutting on the head infected with lice and lime!

Mr. Tsipras enjoy now a 75% public approval rating because the Greeks are dreamers and they “want-to-believe” that he would deliver the goods he promised during the election. It is an illusion that Greeks will need time to digest, probably 4 more years. I won’t be surprised if je lose some deputies in the parliament, and may be forced to form a coalition with other more militants Greek politicians who want to get out of the EU. The Syriza party has promised too much to be able to deliver, and its staying in power in the time ahead will be very muddy and very slippery.
Nikos Retsos, retired professor

Posted by Nikos_Retsos | Report as abusive

Tax the Church? A “brave move, minister”.

Firstly, the Greek Orthodox Church is a fundamental part of Greek society, something difficult for the liberal West to understand. I would have expected more understanding from your posts.

Secondly, this is the same as Henry VIII sacking the monasteries and then realising he’d just shut down his main agencies for poverty relief and education. The Greek Church is often the first point of call for the needy in rural areas not the local government. In Athens you can see the lines at the Church funded food kitchens. They get longer every time I visit Athens. The churches are also often the only place that non-European refugees can sleep or find food. Walked through the streets of Patras and seen the Africans hanging on the port barbed wire, recently? Thought not.

Thirdly, Tsipras needs allies not enemies now. The Church was a vocal opponent of the troika and austerity since the effects hit the rural poor heavily. Why on Earth would he pick fights now? Is your advice actually sincere or merely a recipe for disaster?

I am not a fan of the current Greek government but they are the incumbents. They need to recognise the enormity of the task but the West needs to remember they are a culture and society different from the chattering liberal classes of Britain.

Oh and if the government moved against the Church, then the Church might ask for the land ceded to the State back. We expect the Greeks to abide by the agreements made with their Western creditors but in the same breath demand that they break older agreements. Logic fail.

Posted by Thurlac | Report as abusive

I fully agree with the comments posted by Thurlac which are accurate and to the point.
The Greek Orthodox Church is supporting the needy without taking under
consideration nationality, colour or creed. Others should follow the Church’s example.

Posted by SolPer | Report as abusive

Hi Hugo,
Can you trust a former leftist undergraduate unionist?
Have you read his CV?

Posted by 1626 | Report as abusive