The past year has been a turbulent one for Greece, marked by two elections and a national referendum, a flirtation with a catastrophic sovereign default, and the transformation of Prime Minister Alexis Tsipras from anti-austerity firebrand to dispenser-in-chief of the harsh fiscal medicine demanded by the IMF and the EU within the space of less than 10 months.
The conclusion of a third bailout agreement and the formation of a new government with a stronger commitment to fulfilling the terms of the loan agreement following a snap election held in September have put Greece on steadier ground. The country will remain buried in debt indefinitely, even if the government faithfully fulfills all of its obligations, without some measure of debt forgiveness. However, with creditors offering no guarantees on that score, Tsipras will have little choice but to impose politically unpopular reforms, trusting that his government will eventually be rewarded for its courage by lenders, and hoping in the meantime that both his own leftist SYRIZA party and its right-leaning coalition partner, ANEL, do not suffer a weakening of their resolve.
Given the lack of ideological differences between SYRIZA and ANEL, the electorate’s weariness of austerity, the unions’ bitterness over their perceived betrayal by Tsipras, and the added social and fiscal strains created by a massive influx of refugees from Syria, Iraq, and other areas of the Middle East and Central Asia, the risk of failure is fairly high. The timeline for completion of the first review under the bailout program, a condition for the release of $2.4 billion in ESM support and another $11.5 billion for bank recapitalization, has been pushed into 2016, and the government will need to devise a plan for dealing with an abundance of non-performing loans and mortgages that are in arrears.
The policy challenges will only increase with the next stage of reforms, which will require an overhaul of the troubled pension system and an increase in the agricultural tax, both of which are almost certain to provoke a backlash. Consequently, it cannot be taken for granted that the government will stay the course, and its failure would not only carry a significant risk of another deep economic downturn and a renewed risk of default, but would also create a danger of increased support for the neo-fascist Golden Dawn.