By Marcus Walker
The clock is ticking for Syriza--the victorious antiausterity
party in Greece's elections--to strike a deal with creditors to
keep Greece solvent and in the euro.
It wasn't clear yet late Sunday whether the left-wing party had
won more than half of the 300 seats in Greece's parliament, though
Syriza moved quickly to form a governing pact with a small
nationalist, antiausterity party, the Independent Greeks. The big
challenge now lies in Greece's empty treasury, and in a game of
chicken with Europe.
Greece--one of 19 countries that use the euro--needs billions of
euros in coming months from other eurozone governments and the
International Monetary Fund to avoid defaulting on public debts.
Greek banks also need continual liquidity from the European Central
Bank. Europe's current bailout plan for Greece expires on Feb. 28.
A successor can't wait too long.
Syriza says it wants to replace the bailout plan, with its tough
requirements on budget rigor and economic overhauls, with a new
agreement that relaxes austerity, reverses free-market reforms, and
relieves some of Greece's debt burden. Officials in Berlin and
other key eurozone capitals say Greece must stick to the agreed
path of rigor and reform if it wants further financing.
The stated positions are miles apart. A deal on the budget and
debt looks difficult but possible. Syriza wants to run a primary
budget surplus (excluding interest) of 2% of gross domestic
product, instead of the current target of 4.5%.
A budget compromise would probably entail some restructuring of
European bailout loans, to make Greece's debt trajectory look
sustainable. Eurozone governments could promise to further extend
loan maturities while further reducing and postponing interest
payments. They have done it before.
Structural reforms could be thornier still. Syriza wants to
reverse steps already taken to deregulate and privatize parts of
Greece's economy. Germany and other creditors want such overhauls
taken further: They see them as essential for making Greece's
economy more viable inside the euro. An about-face by Syriza could
test its internal unity.
German Chancellor Angela Merkel, Europe's most powerful leader,
wants to avoid a Greek exit from the common currency, which would
risk inflicting heavy losses on eurozone taxpayers and could hurt
Germany's reputation, people familiar with her thinking say. But
she needs a counterparty in Athens, these people say: a government
that is willing to make Greece more frugal and competitive.
Unless Syriza caves in, and is helped by face-saving concessions
by Europe, Greece risks running out of money by summer or earlier.
That looming prospect would have the potential to trigger bank runs
and capital controls. If Greece can't finance its government or
banks in euros, it would be forced to print drachmas.
Greece lacks the cash to repay bonds held by the ECB that fall
due in July and August. Eurozone officials say that they fear
Greece might even run short of cash to repay its IMF loans that are
falling due in March, because this winter's Greek political turmoil
has hurt the economy and tax revenues.
Even before those deadlines, rising anxiety that Syriza won't be
able to meet Europe's terms for new credits could spook Greeks into
accelerating their recent withdrawals of bank deposits.
If deposit flight were to take off and talks with creditors got
stuck, the ECB could find it increasingly hard to justify financial
support for Greek banks--even in the form of so-called Emergency
Liquidity Assistance from Greece's central bank. The ECB would need
at least the prospect of a likely deal on a new Greek bailout
program, or it would likely have to pull the plug at some point,
analysts say.
Finding agreement looks "extraordinarily difficult," but the
costs of failure would be huge for everyone, said Gabriel Sterne,
head of global research at Oxford Economics. "Someone has to blink
quickly."
Marcus Walker
Write to Marcus Walker at marcus.walker@wsj.com