Sunday, September 28, 2014

Fearing political crisis, Greece plots escape from bailout

Fearing political crisis, Greece plots escape from bailout
Greek Prime Minister Antonis Samaras and German Chancellor Angela Merkel address a joint news conference in Berlin on Sept. 23, 2014. (Photo: Reuters)
September 28, 2014, Sunday/ 03:05:58/ REUTERS / ATHENS

Four years after a messy descent into emergency funding to stave off bankruptcy, Greece's government is trying to pull the plug on a deeply unpopular bailout program to secure its own survival.
Under growing pressure from anti-bailout leftists, Greek Prime Minister Antonis Samaras desperately needs a new narrative to get the backing of lawmakers in a crucial presidential vote next year and rally Greeks fed up with four years of austerity.
It is a gamble with high stakes for the Greek economy and Athens' relations with its eurozone peers. Failure by Samaras to get his presidential nominee elected would trigger new polls that his anti-austerity rivals would almost certainly win.

In Berlin earlier this week, Samaras for the first time publicly acknowledged that Athens hoped to wean itself off a 240-billion-euro ($305-billion) EU/IMF aid package a year before its scheduled end in early 2016.

He offered no details, but Athens is calculating that declaring an end to the reviled bailout could be just the political game-changer it needs, with the end of bailout funding from the European Union in December offering a logical moment to seal the exit of the International Monetary Fund as well. "It makes political sense, completely 100 percent," a source familiar with the discussions said. "The IMF is not pushing to leave, the government is pushing for it."

Pulling this off, however, will almost certainly require Athens to notch up rapid-fire successes on several fronts -- a swift end to its current bailout review, securing debt relief and the backing of European partners for going it alone.

In addition, forgoing over 12 billion euros in IMF loans and finding its own financing, just two years after a sovereign debt restructuring, remains a risky bet. "If Greece completes this review with the blessing of the troika, who say 'Great, you've done a lot', maybe gets debt relief and a monetary agreement with the EU, then the markets may say 'That's good' and it can raise 10 billion over the next year," the source said. "It's a plausible financing scenario but there are risks for a country with emerging market access," the source added, referring to Greece's still low credit ratings.

Juggling risks

Athens is largely gambling that the political risk of not attempting an exit outweighs the financial risk of failing. Sentiment is finally turning in its favor: four years of austerity have produced a primary budget surplus, it has successfully tapped debt markets twice this year and its economy is set to grow in 2014 after a six-year recession.

European partners -- busy with a crisis in Ukraine, a widening Middle East conflict and a stagnant eurozone economy -- may well be willing to help Athens along to avoid upsetting the fragile pro-bailout political order in Greece.

In a sign of the change in mood, German Chancellor Angela Merkel on Tuesday praised Greece's efforts and promised Berlin would "do everything it can" to support Athens. She did not comment on Samaras's plan for an early bailout exit, which Greek officials say would avoid the anomaly of the IMF supervising a European nation alone.
Europe wants to ensure Athens does not slide back into the fiscal evasions that brought it to the brink of bankruptcy -- a risk Athens plans to address by presenting a plan for further reforms to strengthen the economy and government finances.

But if the IMF were to leave at the end of the year after disbursing 3.5 billion euros due at the end of the current review, Athens would forego over 12 billion euros. The IMF has also estimated an additional funding shortfall of 12.6 billion euros starting in mid-2015, though Athens disputes that, saying it does not need additional money beyond the current bailout.

Part of the shortfall could be met from leftover funds worth over 11 billion euros held by Greece's bank bailout fund -- assuming European bank stress tests do not reveal major capital needs for Greek banks and EU authorities approved such a move.

After ending a four-year exile from debt markets this year with two bond issues that showed keen appetite for its higher-yield bonds, Athens is increasingly confident.

Debt relief talks due to start later this year on a package of lower interest rates and longer maturities may also help the IMF to declare that Greece's debt -- set to peak at 177 percent of GDP this year -- is now sustainable. Indeed in Berlin this week Samaras took pains to say an exit by the IMF would not be a "divorce" but rather, "a success.”

Radical left ahead

For Samaras, all this will have to happen before February or March next year when he needs the support of 180 deputies in the 300-seat parliament to push through his nominee for president.

He has only the support of 154 deputies from his New Democracy party and Socialist PASOK coalition partner, but a bailout exit could help lure some of the 24 independent lawmakers and perhaps even a small anti-bailout party.

The radical leftist Syriza party, which has 71 seats in parliament and won the EU elections in May on an anti-austerity platform, has pledged to block the government's candidate.

Failure to elect a new president would require a general election, which Syriza would almost certainly win according to opinion polls that give it a 2 to 6 percentage point lead. "The government is now playing all its cards in an effort to get the 180 deputies it needs ... to stay in power," said political analyst John Loulis. "But there is a sense of political instability and a government that is wearing out."

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