The battle against Grexit – Greece’s exit from the euro – is far from won. Assume Athens is promised its next 44 billion euro tranche of bailout cash and some further debt relief when euro zone finance ministers reconvene on Nov. 26. Even then, the banks will still be hobbled, while another round of austerity is in the works and vested interests are rife.
It will be hard to restore confidence and, without that, there won’t be a return to growth. Meanwhile, without growth, Antonis Samaras’ fragile coalition government will fall. Alexis Tsipras’ radical left SYRIZA movement would then probably take over – plunging the country into a new hot phase of the crisis. What’s more, if investors and consumers fear such a scenario, they won’t start spending – making a continuation of the slump self-fulfilling.
Samaras, who became as prime minister in June, has been better than many feared. His strategy has been to do everything demanded of Greece by the “Troika” – the European Commission, the European Central Bank and the International Monetary Fund – with the aim of changing the perception that Athens cannot be trusted.
The prime minister had to make up a lot of lost ground: partly because of mistakes made by George Papandreou’s government; and partly because Samaras himself was unwilling to get behind the reform programme when he was in opposition and then brought Loukas Papademos’ technocratic administration to a premature end. The last year’s shenanigans – Papandreou’s aborted referendum followed by two destabilising elections – have savaged Greece’s credibility.
That said, Greece’s recent “good behaviour” looks like being rewarded by a cash injection and some debt relief. That will undoubtedly be good news – giving a new chance to the country, where I spent much of last week. But it probably won’t be big enough.