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New Greek government will toe bailout line, at least for now

Published 17/09/2015, 19:06
© Reuters. A woman reads a newspaper at a bus stop in front of an election kiosk of former Prime Minister Alexis Tsipras' leftist Syriza party in Athens

By Lefteris Papadimas

ATHENS (Reuters) - European unease that Greece may falter on its bailout promises after elections on Sunday looks misplaced, at least initially, as its pressing need for money means that whoever wins is likely to toe the line.

Both leftist Syriza leader Alexis Tsipras and conservative New Democracy rival Vangelis Meimarakis, who are running neck-and-neck in opinion polls, have said that if elected they will push on with the fiscal reforms demanded by Greece's creditors.

But euro zone creditor governments remain wary. Germany stressed on Wednesday that the new government would be bound by all the terms and timeframes in the bailout agreement.

"We have formulated clear conditions that must be fulfilled and they apply to any future government," finance ministry spokesman Martin Jaeger told a news conference in Berlin.

Both party leaders know that if they fall short, Greece will face problems this autumn when the creditors are due to make their first review of progress under the 86-billion-euro ($96.5 billion) programme which Tsipras, as prime minister, accepted in July.

Tsipras forced the election by resigning last month, hoping to quell a rebellion in Syriza over the programme's demands for profound economic reform and yet more of the austerity policies which have hurt Greeks so badly in the past five years.

A successful review would release a further $3 billion euros from the bailout fund, expected to cover debt repayment commitments and arrears to suppliers run up by the Greek state. On the other hand, the creditors could halt the flow if they decide Athens has failed to keep its side of the bargain.

Greece is also likely to cooperate with a European Central Bank health check of its banks, which came close to collapse before the bailout deal was struck.

Panicking Greeks pulled billions from their accounts before the Syriza government closed the banks for three weeks and imposed controls on withdrawals which largely remain in force.

The capital controls are hurting economic activity but cannot be lifted until the banks are recapitalised, a process expected to take effect before the end of the year. The ECB-led review will determine how much they need, and the sum could reach $25 billion.

"Our top priority, right after the elections, is the recapitalisation of the banks," Olga Gerovasili, spokeswoman for the previous Syriza government, told Reuters.

DELAYS POSSIBLE

But the bailout review, due in October, may be delayed if horse-trading holds up the formation of a new government, meaning the next installment would need to cover a longer period.

Tsipras and Meimarakis ruled out working with each other in a TV debate on Monday, turning the grand coalition that the creditors were hoping for into a long shot.

With the state due to repay about 1.3 billion euros of International Monetary Fund loans in December and about 6 billion euros more to the IMF and ECB in 2016, delays might also put back discussions on relieving Greece's heavy debt burden, widely flagged to start after the first review.

Other parts of the programme might be diluted as both Tsipras and Meimarakis are likely to seek agreement from the creditors to budget measures cushioning the blow for Greeks from the bailout stipulations.

Greece narrowly avoided an exit from the euro zone earlier this year, and both leaders may try to use a renewed "Grexit" risk as a weapon in future negotiations with their EU partners.

Asked last week in an interview with Reuters whether he would renegotiate parts of the bailout, Meimarakis said Greece had to make significant progress and meet its fiscal targets to regain its foreign lenders' trust.

But it also had to push for measures to cushion the impact of austerity, he said, adding: "Our partners do not want to strangle us."

© Reuters. A woman reads a newspaper at a bus stop in front of an election kiosk of former Prime Minister Alexis Tsipras' leftist Syriza party in Athens

Tsipras said Syriza would implement the agreement "as fast as possible, (but) fighting on the issues that lie ahead". He also promised to negotiate what he calls a "grey area" of labour and pension reforms and privatisations.

(writing by John Stonestreet; Editing by Jeremy Gaunt and David Stamp)

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