The Greek Prime Minister Alexis Tsipras has called for a bridging loan instead of an international extension on the repayment of its loans. The aim of the bridging loan is to keep the country afloat until June 2015 when the government may announce a “new deal” which might be free from any input of international lenders. The announcement comes after a diplomatic tour where Mr Tsipras and Yanis Varoufakis, the Greek Finance Minister, attempted to recruit support of European Union members for their plan to reduce debt and lighten the terms of its austerity programme.
Greece has experienced economic challenges and, in 2010, required two loans from the Eurozone countries: European Central Bank (ECB) and the International Monetary Fund (IMF) totaling €240 billion. Furthermore, the deal involved that these organisations may cover Greece’s financial needs until June 2013 under the condition of austerity measures, structural reforms and the privatization of government assets. The conditions applied to Greece have been controversial within the country and therefore have led to some calls for a move away from austerity measures.
Syriza, a left-wing party, came to power in the January 2015 elections in which it gained 36% of the vote and formed a coalition government with the Independent Greeks party. Syriza has promised the creation of 300,000 new jobs in an attempt to raise the youth employment rate and the increase of monthly wages. Furthermore, it also promised 300kWh of free electricity and food subsidies for some families. The party additionally aims to write-off most of the country’s debt which stands at 175% of GDP as well as the remaining repayments being tied to economic performance of the Greek economy rather than the government’s budget.
The other members of the European Union appear to want Greece to keep to the agreements it made when it took the loans such as the promises of austerity. Leaders such as German Chancellor Angela Merkel may see that these measures are more likely to maintain economic performance and that the structural reforms may prevent any repeat of a similar situation. Equally, any easing of the agreements might lead to other countries who have taken loans seeking renegotiations to a similar degree and therefore the creditors are looking to continue with the current renegotiation and austerity measures.
The European Union is seeing a rise in parties such as Syriza in other countries which are subject to austerity measures and loan repayments. An example of this is a party called “Podemos” in Spain which, in a recent poll, held 24% making it a relevant part of the opposition. Podemos’ leader Pablo Iglesias has called for similar policies to Syriza: such as a restructuring of public debt although Podemos also desires shorter working weeks and a lowering of private debt. In some ways the rise of other Syriza-like parties may strengthen the EU’s position as if it is to renegotiate on any agreements there may be calls for a wholesale with all countries regarding their loan agreements. Equally, it may seem unfair to other countries which repaid their loans and have left their bailout such as Ireland.
The calls by Prime Minister Tsipras may require support from European Union countries as Greece requires financial support. Whilst the European Union may wish Greece to stick to its agreement it might look to negotiate partly such as lowering the debt repayments to a more affordable level which may ease the financial situation. Equally, by making small rather than wholesale concessions, the EU may send a signal to other parties with similar aims that there is room for some relief whilst maintaining other parts of the agreement that may prevent a similar situation in the future.
How might Prime Minister Tsipras’ calls for a bridging loan improve relations within the European Union?