Greece – Crisis Averted, but Risks Remain

A months-long standoff between Greece and its EU creditors reached a turning point on July 13, when Prime Minister Alexis Tsipras’ leftist government agreed to implement reforms demanded by Germany and other members of the euro zone in return for a third bailout package that will make available more than $90 billion in fresh loans over the next three years. Voters affirmed their support for SYRIZA’s anti-austerity agenda at a referendum held in early July, with 61% rejecting the EU’s terms for a new package of rescue loans. However, facing the threat of sovereign default, a collapse of the banking system, and the disastrous prospect of Greece’s forced exit from the monetary union, the prime minister committed his government to a reform program that is arguably harsher than the one voted down just a week earlier and includes no promise of debt relief as a reward for faithful implementation.
Although it is likely that final negotiations will be wrapped up before Greece’s next significant debt payment falls due on August 20, Tsipras only managed to secure approval of his government’s proposals with the backing of opposition lawmakers, as more than a dozen SYRIZA members rejected the terms. Implementation of the various reforms on which the loan program is conditioned will require separate parliamentary approval, and Tsipras will need to bring the SYRIZA dissidents around if his claim to a mandate is to have any validity, and he has already warned the rebels that their failure to toe the party line would force him to call an early election.
Recent polls suggest that SYRIZA would score a landslide victory in the event of snap election, as a majority of Greeks are apparently willing to give Tsipras credit for at least putting up a fight in a battle with a much more powerful opponent. However, while a worst-case scenario appears to have been averted, the economy has once again fallen into recession, restrictions on bank withdrawals are still in place, and the austerity measures and structural reforms the government has agreed to implement will produce hardship, even as the country’s debt burden continues to grow larger, and debt repayment consumes a large share of the new loans made available under the bailout agreement.
It is debatable whether SYRIZA’s popular support will continue to hold up under such conditions. If not, the main beneficiaries of a loss of faith in Tsipras and his party are likely to be far-right organizations that have decried the bailout agreement as capitulation to Europe’s moneyed classes, a development that would create an obstacle to forming a stable government down the road.