Greece’s reform job is not even half finished. The government hasn’t done enough to root out the vested interests that strangle the economy. Nor has it cracked down fully on tax evasion or pushed hard enough to privatise state-owned properties.
On the other hand, Antonis Samaras’ coalition is so fragile that it could collapse if the troika – the European Commission, the European Central Bank and the International Monetary Fund – forces it to impose more austerity. That could lead to a new phase in the Greek crisis. The government’s best bet is to make a sharp distinction between structural reform and austerity – and persuade its lenders that it’s so serious about the former that more cuts and taxes aren’t required.
The atmosphere in Athens, which I visited last week, is tense. One reason is that two members of the ultra-right wing Golden Dawn party had just been murdered in a professional hit job. That followed the killing of a left-wing rapper by a member of Golden Dawn which, in turn, had triggered the arrest of the party’s leader. No one is quite sure whether this is the start of a cycle of violence which could destabilise the government, drive away tourists (the country’s main source of export revenues) and undermine business confidence.
The other reason for the tension was that the troika was in town for its latest review of Greece’s mega bailout. Going into the talks, the government’s lenders were hinting that a further budget squeeze of the order of 3 billion euros (more than 1.5 percent of GDP) was needed to hit next year’s fiscal targets. Athens’ own view was that the “fiscal gap” was only 500 million euros.
One small party pulled out of Samaras’ coalition in the summer after he sought to close the national broadcaster in a ham-fisted way. As a result, his majority is wafer thin and backbench parliamentarians from both governing parties could rebel if they are asked to approve more unpopular measures.