Challenges Ahead

Sometimes I am getting asked why my blog entries are so dark and do not hint to alternative solutions to problems. On a general level I am a traditionalist and think that it is not the job of academics to provide ‘solutions’. We are in the business of analysis, and already this is a quite demanding job. This leads me back to Greece and the most recent outcome of its elections. The old coalition is back and one can wonder what it means that Tsipras entered again coalition with a right-wing party when at least two alternatives were available. One answer is that having a strict anti-austerity party as coalition partner may help to maintain a discourse that reflects public sentiments. This will not change reality, though. And reality for Greece means that its third bailout program is enormously tight monitored by the EU, and each additional tranche is bound to a positive evaluation of reform steps. The next evaluation comes up mid-October. Also in October Greek banks will undergo a stress test that is supposed to show whether the 12 bn Euro dedicated to the recapitalization of the banks is still sufficient. Already October 5 the Greek government has to present its budget, and the creditors will have sharp look whether the budget will include all promised reforms, and recall that Greece promised overall 127 reform steps, including some critical tax rate increases.

All this is a heavy load for any government. Whether the coalition is willing and able to deliver is an open question. Reform ownership seems not at the centre of its approach. The creditors on the other side will not be willing to show grace. Given the many challenges the EU has to deal with, Greece will have to accept the ‘love-or-die’ logic of the bailout program. And this will not easily be accepted by a already exhausted population.