Greek debt Running on Empty Promises

By playing for time over its debt crisis and failing to act on promises of tax reform, Greece's new leader is increasing the finanacial burden on the country and its creditors.
Alexis Tsipras.

There is a big difference between what Alexis Tsipras says and what he does.

The new prime minister of Greece, who swept to power last month on a wave of anti-austerity support, recently promised a solution to his country’s debt crisis “in which everybody wins.”

He was referring to Greece of course, and the troika of lenders who bailed it out to the tune of €240 billion ($273 billion) during the height of its financial crisis: euro-zone countries, the European Central Bank and the International Monetary Fund.

In reality, Mr. Tsipras has done much to increase the damage.

It doesn’t matter how the ongoing repayment negotiations between Greece and Europe’s finance ministers turn out. It’s already clear any solution will be more expensive than was assumed a few weeks ago during the Greek elections, when the country still hoped it would be able to step out of the bailout program.

Then, a precautionary credit line of only €10 billion would have served as a safety net while Athens pursued a path back to a stable financial policy.

Greece's tax receipts have plunged as many people have already stopped making payments to the tax office

Today, such an option is in doubt. No one in the euro zone thinks Greece can get by with a precautionary credit line. Instead, Europe will probably have to line up a new bailout package in excess of €20 billion, possibly even more if Mr. Tsipras continues to alarm other euro countries, the financial markets and, not least, many Greek citizens and companies.

He’s distorting facts when he declares, “Instead of money, we need time.” In Greece’s case, time is money, a lot of money.

Worried Greeks are emptying their accounts and financial institutions are suffering a massive drain of capital that can only be balanced by an ECB emergency loan. It’s doubtful any companies will invest in such a climate.

Meanwhile, the country’s tax receipts have plunged as many people have already stopped making payments to the tax office in anticipation of coming changes in the law. This says a lot about the seriousness of Mr. Tsipras’ election pledges to force more Greeks to pay their taxes, and about the continuing wretched condition of the Greek tax system.

Mr. Tsipras may be correct when he accuses the troika of having insisted for too long on austerity and too little on fixing abuses of the system, such as in tax administration. But to suggest that Brussels, Berlin or Washington are primarily to blame for Greece’s misery is absurd.

It is now clear that Mr. Tsipras is in the process of increasing the country’s problems again by stalling for time and helping to foment unrest.

Europeans will pay for this by continuing to stump up bailout packages, at least while it remains a cheaper option than Greece going bankrupt and exiting the eurozone. So much for Mr. Tsipras’ promise that “everybody wins”.

 

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