Greek PM weighing impact of impasse with creditors

As Greece’s international creditors seem increasingly unwilling to cut the government any more slack, the negotiations over the second review of the country’s third bailout do not appear to be heading to a conclusion any time soon, essentially dashing the government’s hopes of clinching a deal before national elections begin in major European countries from March onwards.

And if Prime Minister Alexis Tsipras didn’t have enough on his plate, creditors have, according to sources, also added the reduction of the tax-free ceiling – if not now then in January 2018 – to their list of demands in order to conclude the review.

For now, Tsipras is dismissing the demand on the grounds that ruling SYRIZA’s parliamentary group would not support such a measure.

Moreover, the political cost would be risky given the comfortable lead the opposition conservative party enjoys in the polls: The latest survey conducted by the University of Macedonia on behalf of Skai TV showed SYRIZA trailing New Democracy by 16.5 percent.

Given the above constraints and the lack of progress in negotiations, expectations at today’s Eurogroup remain extremely low.

According to government aides, the only person among the country’s creditors actively pushing for a swift conclusion is Eurogroup chief Jeroen Dijsselbloem, who wants to present a European success at home ahead of national elections on March 15 in The Netherlands.

However, neither Berlin nor the International Monetary Fund (IMF) appear willing to make this easy for Tsipras.

The outcome of the impasse in talks could be a protracted standoff between Athens and Greece’s creditors that could last until April in the best case, and June in the worst.

The government claims it has enough in state coffers to last until then, while the next big debt repayment to international creditors is not until July.

With this scenario, Tsipras will seek to buy time, hoping that Berlin and the IMF will soften their stance in the meantime.

More specifically, Athens anticipates that the IMF will no longer fund the Greek program and thus climb down from its demands for more measures to be implemented now.

Secondly, it is hoping that the clash between German Finance Minister Wolfgang Schaeuble and Martin Schulz – the Social Democratic Party’s candidate for chancellor – over the “Greek issue” will force incumbent Angela Merkel to prevail over her finance chief to back down from his tough stance.

But the risk attached to protracted negotiations is a big one for Tsipras, as the fragile prospects of economic recovery could be further undermined if the prevailing climate of uncertainty continues.

For this reason, early elections cannot be ruled out, even though the government denies it is considering this option as its Plan B.

Analysts believe the strong rhetoric used by Tsipras during his parliamentary debate with New Democracy leader Kyriakos Mitsotakis on Friday had all the hallmarks of an election campaign, while several Greek lawmakers also point to the government’s hint to contract firemen last week that they could be hired permanently, as another example that snap polls are imminent.