Will Greece Bail On Its Bailout Terms?

The Greek leftist Syriza party had a convincing win in September’s elections. Now, its leader Alexis Tsipras must start implementing the European Union (EU)-imposed austerity program.

By appointing a pro-bailout cabinet, Tsipras showed that he intends to at least attempt to comply with the bailout’s conditions. Tsipras has retained the team that negotiated the latest bailout, including finance minister Euclid Tsakalotos, after the previous anti-bailout finance minister Yanis Varoufakis was fired in July.

However, the bailout terms remain thoroughly unpopular in Greece, as evidenced by July’s referendum.

While Greece’s compliance with the bailout terms is by no means assured, it’s doubtful whether the EU has the courage to do anything but give Greece the money.

The bailout includes provisions such as reforming state pensions, tax increases on farmers, privatization of state banks, and liberalization of closed markets. All of these are bitterly opposed by one element or another of Tsipras’ leftist/nationalist coalition government.

But there are some things this government can agree on. Particularly imposing a more realistic level of tax on Greece’s ultra-rich and low-taxed shipping companies.

Not Such a Heavy Debt

As the EU demonstrated during negotiations earlier this year, they’re very unwilling to force a default on Greece’s debt or take away the euro common currency. Thus, it’s likely that the EU will tolerate a considerable amount of foot-dragging and prevarication.

Much of Greece’s 86 billion euros ($97 billion) of bailout funding will probably be released in dribs and drabs, just in time to make the repayments due on Greece’s outstanding debt and recapitalize its staggering banks.

Greece has too much debt – a total of about $360 billion – that’s clear. However, about $290 billion of that is owed to the IMF and the EU on low-interest, long-maturity terms, with about $220 billion of that produced by the first two bailouts. Hence, the downside of a Greek default on markets wouldn’t be huge.