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30/09/2016

Tsipras forced to back down on anti-austerity plan

Euro & Finance

Tsipras forced to back down on anti-austerity plan

Alexis Tsipras

[Joanna/Flickr]

The Greek government has caved to the demands of its creditors and abandoned plans for a “parallel programme” of counter-austerity measures. Our partner La Tribune reports.

The goodwill between Greece and its creditors did not last long. The “parallel programme”, which aimed to counterbalance the austerity measures imposed by the creditors since July, was examined by Greek MPs on Monday (14 December).

But according to Greek media, the programme was withdrawn on Thursday (17 December) after being rejected by the Euro Working Group (EWG), a technical body of the Eurogroup. This rejection threatens to compromise a €1 billion social spending package that had been approved by the Greek parliament.

Bound by the memorandum

In order to avoid the risk of insolvency, the government has had to row back on the plan. Greek Prime Minister Alexis Tsipras has felt the sting of the third Memorandum of Understanding (MoU), which he signed on 19 August.

This text explicitly prohibited the Greek government from making any spending increases without the creditors’ blessing. Unable to obtain this endorsement for his “parallel programme”, Tsipras was forced to abandon the project.

The details

So what did Alexis Tsipras hope to achieve? The first measure consisted of providing medical care to those who fall outside the social security system. Tsipras’ government also planned to develop support cells for “vulnerable people” in town halls and mayors’ offices.

Government-funded soup kitchens were to be expanded and given another year’s funding. A “social” electricity bill, designed to cut energy costs for the most deprived households, was also envisaged. And finally, the Athens education authority planned to provide supplementary support classes.

Why the creditors rejected the programme

The EWG evaluated the cost of this “parallel programme” at €1 billion. A cost it deemed too high.

In March, a more ambitious programme to tackle the “humanitarian emergency” had been valued at €200 million.

But the Greek government reported a surplus of €4.4 billion in November, when its objective was €2.6 billion. So it appears that Tsipras is sticking to his budgetary commitments and is even on track to exceed his objectives. But the MoU makes no provision for rewarding such successes.

All of Greece’s budgetary measures must be approved by the creditors, who can block them if they believe they will jeopardise the country’s objectives in the medium term. The MoU also stated that one quarter of any surplus generated from exceeding the objectives should go towards paying off the Greek national debt.

Political motivations

In reality, this parallel plan is not to the taste of the creditors, who had also tried to block the adoption of the first humanitarian package in March.

>>Read: Greek parliament passes anti-austerity bill

And the reason is very simple. The creditors’ aim is to reduce social costs in order to cut public spending and increase competitiveness. The expenses of the parallel programme are seen as counter-productive from this point of view.

But the motivation was also political in nature: with his parallel programme, Tsipras hoped to reassure his supporters of his ability to provide a counterweight to the austerity measures already adopted and those to come, notably the very painful pension reforms.

By removing any opportunity for Tsipras to gain political capital by serving his electoral base, the creditors have proved that the political struggle is over.

It is true that the creditors had a tough time negotiating the issues of evictions from main residences and questionable loans from the banks. But they do not now intend to start making gifts to the Greek government.

By blocking this parallel programme, they have shown the reach of their power and demonstrated that they are in charge of Greece.

Good news or bad?

The withdrawal of the parallel programme has exposed the extent to which Tsipras’ hands are tied. This is potentially disastrous for the Greek prime minister because his impotence undermines his discourse of acting as a “shield” against austerity, which he has been clinging on to since signing the MoU.

But this impotence also absolves him of a certain amount of responsibility, which finally resides with the creditors. It could also justify Tsipras’ willingness to end the creditors’ programme as soon as possible in order to gain some room for manoeuvre. This is a high risk strategy, as the effects of the measures taken are yet to be felt on the country’s economy, which is still absorbing the shock of July’s crisis.