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New Greek government faces swift test from creditors

New Greek government faces swift test from creditors

ATHENS: Conservative party leader Kyriakos Mitsotakis was sworn in as Greece’s new prime minister on Monday, a day after his resounding win over left-wing Alexis Tsipras, who led the country through the tumultuous final years of its international bailouts.

Mitsotakis, 51, was elected on a pledge to cut bailout-era taxes and ease draconian budget targets set by Greece’s creditors during the years of financial rescue commitments that could soon be put to the test by the country’s creditors.

The son of a former prime minister and brother of a former foreign minister, Mitsotakis will have to move fast to deal with the myriad of problems still plaguing the economy. An inspection from Greece’s former bailout creditors is overdue and will take place amid warnings that the country’s public finances have gone off track.

Greece’s creditors appeared in no mood to give the new government any grace period.

Dutch Finance Minister Wopke Hoekstra, arriving for a meeting in Brussels of finance ministers from the 19 European Union countries using the euro currency, said the new government has little room for maneuver for any economic reforms and budgetary changes, since the policy backdrop has already been agreed with the other eurozone countries as part of Greece’s rescue programme.

“We will have to wait and see what the plans are,” Hoekstra said.

“Clear long-term agreements were made about setting (Greece’s) budgetary house in order and pushing through reforms. It is based on a whole package and I assume that will stay intact,” he said.

Mitsotakis’ New Democracy party won 39.8 per cent of Sunday’s vote, giving him 158 seats in the 300-member parliament, a comfortable governing majority. Tsipras’ Coalition of the Radical Left, or Syriza, garnered 31.5pc. The extremist right-wing Golden Dawn, Greece’s third largest party during the height of the financial crisis, failed to make the 3pc threshold to enter parliament.

“The people gave us a strong mandate to change Greece, and we will honor that commandment in full,” Mitsotakis said after his swearing-in ceremony. “We will make the start today with hard work, with full confidence in our ability to respond to the circumstances.” Tsipras, 44, joined the ranks of financial-era prime ministers who lost elections after having to impose deep spending cuts and tax hikes on the country’s citizens.

Transforming his Syriza party from a small radical left group to a party of power, he won a January 2015 election on promises of repealing bailout austerity measures but was soon forced to change tack. His government signed up to a third international bailout, with accompanying mandated reforms, after tumultuous negotiations with creditors. Though he won a subsequent election in 2015, his standing had diminished following Greece’s brush with bankruptcy and his government’s acceptance of another bailout.

Greece’s economy shrank by around a quarter and poverty and unemployment levels soared during the country’s nearly decade-long financial crisis. Although its finances have improved dramatically and the economy is expected to grow by 2.2pc this year, it still has a long way to go.

The country’s debt stands at about 181pc of annual gross domestic product and Greece has pledged to continue producing large primary surpluses the budget excluding debt servicing of more than 3pc of GDP for years to come to repay its debts.

Mitsotakis said Sunday he would stick to his campaign pledges of lowering taxes, attracting investments and cutting through red tape to make Greece more business-friendly.

“New Democracy’s clear victory in Greece’s parliamentary elections yesterday will be welcomed by investors,” said economics consultancy Capital Economics in a research note. “But it will not be a game changer for the economy, not least because the government will still be constrained by its membership of the single currency and its ‘surveillance’ agreement with the EU.” That caution was evident in the Athens Stock Exchange, which closed down 1.8pc following successive increases ahead of the widely anticipated election result. Greek borrowing rates continued to fall with the 10-year government bond yield hovering just above 2pc.

Mitsotakis will also have to contend with pension increases and other benefits the outgoing government granted ahead of European elections in May benefits which European creditors had warned could make Greece’s fiscal targets hard to meet.

Published in Dawn, July 9th, 2019

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