- Alexis Tsipras has called a halt to privatisations agreed to under Greece's bailout
- The new Greek PM also plans to block EU sanctions on Russia over Ukraine
- Debt backsliding needs to be nipped in the bud before France, Italy and Spain start thinking they can stop their reforms
By Stephen Pope
With an all too conspicuous disregard for tradition and authority, an open-collared Alexis Tsipras arrived at the Greek Presidential Palace to be sworn in as the 186th Prime Minister of the Hellenic Republic of Greece.
He campaigned on an anti-austerity programme and he has wasted no time in issuing a series of hard talking pronouncements.
Greece is insisting on renegotiating repayment of the money it owes, even though its economy makes up a tiny slice of Eurozone GDP. Photo: iStock
On Wednesday, January 28 – just two days into his premiership – Tsipras drew his battle lines as he called out to international creditors by bringing a halt to the privatization plans agreed under the country's bailout deal. His proposals led to the Athens General Composite Stock Index to fall by 72.40 point or 9.24 percent to 711.13.
Source: Yahoo! Finance
This marks the third successive lower close after the election on Sunday, and illustrates the fear that is hitting the nation’s financial assets after parts of the previously arranged bailout agreement start to unravel.
No mood to compromise
A swift series of announcements signalled that this new government intend to oversee the implementation of its anti-austerity pledges. However, the markets have shown that this is simply going to lead to a collision with European partners and international creditors. A louder voice than Greece is that of Germany. The Eurozone’s leading economy has openly said that it is taking a hard line and will not renegotiate the aid package needed to help Greece pay its debts.
Tsipras knows that he cannot afford to disappoint the voters who have been swayed by his vociferous rhetoric against austerity and they will be looking for the new Prime Minister to deliver on his raft of completely unrealistic promises.
I am most concerned that the first call to arms for the new government has been a to call a halt to the privatization programme. Strike from the list of state owned entities that could been sold off to raise much needed capital is the port of Piraeus.
This is economic lunacy as this was an asset that had been examined and had five potential and viable interested parties. This is a curious move as one of the bidding parties was China's Cosco Group. It is well known that back in 2010 through 2013 the Chinese had indicated that they wanted to invest in the Eurozone via tangible infrastructure assets as against endless piles of paper based sovereign debt.
Looking ahead, China may have had the potential to have been a good source of liquidity for the Greeks but this rash and illogical action is a slap in the face from Athens to Beijing. In another case of economic mismanagement, the word from the government is that it will now act to block the sale of a stake in the Public Power Corporation of Greece (PPC).
However, it goes further as there are now plans to rehire public sector employees who were deemed to have been made redundant without proper justification and announced rises in pension payments for retirees on low incomes.
In a time of economic hardship, people do lose their jobs. Sometimes good, hard-working people are let go. Such are the slings and arrows of outrageous economic fortune. What about private sector workers that have been laid off? Is the government going to take up their case? Probably not, as it is clear that anything that has the fragrance of the private sector about it is not welcome or respected in the crazy world of Syriza Socialism.
Red rebel or Putin’s pal?
I usually try to show restraint and have respect for anyone elected into office. However, I am moved to claim that this new Prime Minister is simply foolish as Tsipras has started to suggest he will not support European Union (EU) sanctions against Russia over its excursion into Ukraine. Athens refused to be party to a joint communique on Tuesday and the resolution needs the support of all EU members.
Tsipras has told his ministers that the government would not seek out a mutually destructive clash with its creditors, but he has warned that Greece would not back down from demanding a renegotiation of debt.
However, he need only look at the path of the markets for Greek financial assets to realise how foolish he is being…oh but of course…the market is a tool of the capitalist system which Syriza at its heart surely despises.
Just consider the path of the three year Greek sovereign bond (all yield to maturity %):
January 28, 2014: 3.436; Secember 29, 2014: 10.142; January 28, 2015: 16.97
This marked the highest yield level since the 2012 restructuring which wrote off a large proportion of Greek debt held by private investors. Within the equity market banks have been pulverised, as Greek bank stocks retreated over 22% on Wednesday, taking their cumulative losses since the election to 40%.
Tail wags the dog
This is the worst nightmare for the Eurozone, for here we have an economy that accounts for just 1.89% of the region's GDP and yet it is snapping and snarling as to what it will and will not do in terms of money it owes.
It beggars belief that the new Finance Minister Yanis Varoufakis, who will sit with the Head of the Eurozone Finance Minsters Group, Jeroen Dijsselbloem on Friday, said negotiations would not be easy but that he expected they would find common ground.
"There won't be a duel between Greece and Europe"
As if this arrogance were not bad enough, after all the pleading from ECB President Mario Draghi for deeper structural reform Mr Varoufakis said he would meet the finance ministers of France and Italy. These nations, the numbers two and three of the region, have not delivered anything like enough structural reform and they will take heart from the aggressive tenor of Greece.
France has only ruled out a straight cancellation of Greece's debt because it holds too much but it is willing to kick the Greek debt down the road. Whether that will be good enough for Prime Minister Tsipras we will see on February 12 when he meets French President François Hollande before an EU summit.
No room for debt backsliding
I am fully with Germany on this issue as I think it is about time the folly of backsliding on debt and reform were nipped in the bud before France, Italy and Spain start thinking they can stop their reform programmes, however lightweight they are. The Eurozone is on the cusp of an even bigger economic meltdown if Greece is allowed to get away all its demands. The German Economy Minister, Sigmar Gabriel is 100% correct to suggest that Greece should have discussed the halt to privatizations with its partners before making an announcement.
It is clear that Tsipras does not grasp the simple fact that by privatising old and inefficient state enterprises, it can release cash that would allow the pain and anguish to be eased on its citizens. By holding onto the state assets it is simply accumulating a larger wage bill, administrative costs and blocking the path and pace of innovation.
I have little hope that the negotiations between Greece and its creditors/European partners will go well. If Greece is given all it demands, I would want to wash my hands of the Eurozone project. It will see other nations backslide on reform, fail to encourage the wealth-creating private sector and show that the entrepreneurial spirit that creates wealth is to be treated as something grubby. It will show that too many nations believe that the state and the centre knows best and as a consequence, growth will stall and the QE amounted last week by the ECB will be rendered impotent.
I can see that Tsipras has put himself into a foolish position. If he does not get all he demands, then the electorate will see him as the shallow socialist purveyor of snake oil that he and the left wing are.
If he refuses to take anything less then the creditors – who I always said were playing with fire by acquiring Greek assets – should aggressively remind him that a club has rules and members stick to the rules or, as should have been the case in 2010, they will be blackballed and shown the door.
– Edited by Robert RyanStephen Pope is is managing partner at Spotlight Ideas. Follow Stephen or post your comment below to engage with Saxo Bank's social trading platform.