All quiet on Greek front

The woman was from Patmos. Her husband had lost his job and came back to the island to be with their two children and find work. After he failed and she fell ill with cancer, they ran out of money. The bank seized their house and they could not pay the electricity bill.

She was ashamed, she told Lazaros Papageorgiou of Artos-Drassi, a charity in Athens that feeds the poor. Six months ago she would never have dreamed that she could come to depend on charity, but today she needed help.

Under the brilliant-blue Athenian sky, anger has given way to weariness and gloom. Outside Greece's parliament, in Syntagma Square, marchers once braved tear gas and protesters thronged a tented city. It is quiet now. Summer has lured Greeks with money to the islands and the beaches, and the growing numbers who are without it have gone home instead.

On Patission Avenue, about 20 minutes away, shop after shop is barred. Nobody knows how many of them will open again when Athenians return.

The only certainty is life will get harder. Last week the troika was in town: Representing the International Monetary Fund, the European Central Bank and the European Commission, it must judge whether Greece should receive its next $39 billion of rescue funds, which the government will spend mostly on recapitalizing the banks and paying debt interest. To qualify, Greece will have to slash its budget deficit by a total of 11.5 billion euros in 2013 and 2014. Failure would mean being cut off from European funds, leaving Greece no choice but to print its own currency. In effect, it would be out of the euro.

The troika left Athens on Aug. 5 reporting "good progress." The reality, however, is as bleak as the communique is bland. True, the economy is rebalancing. Basic wages in Greece have fallen by 22 per cent, there has been fiscal consolidation and the private-sector labor market has been reformed. The public sector has not shed any of the 100,000 jobs it gained in a splurge of spending before the crunch, however. The target for privatization this year has been cut from three billion euros to 300 million. Unemployment is over 22 per cent and climbing month by miserable month. The economy, which has seen only one quarter of growth since the end of 2008, is expected to shrink by more than seven per cent in 2012.

The glimmer of good news is that mercurial Prime Minister Antonis Samaras, who has at times rejected the austerity deal with the rest of the eurozone, now seems fully behind it. As if pinned to the spot, he seems to recognize his future is now based on Greece staying in the euro. That means convincing a skeptical eurozone Greece really wants to change.

Credibility depends on finance minister Yannis Stournaras, a respected economist whose technical expertise might ally with Samaras' political guile to create a machine that can get things done. The two men understand that not a euro of fresh money is to be had right now. Indeed, they must know plenty of eurozone countries would like to throw Greece out.

Their strategy is to keep that threat at bay and ensure Greece is still at the table when the euro-crisis comes to a head. Greece is at its most vulnerable while its exit could serve as an example to show a bailed-out economy will not enjoy a blank check. Samaras is betting, if the euro-crisis abates, this calculation will change. Once the euro is safe, the rest of the eurozone might conclude Greece will cause less trouble for the European Union inside the eurozone than outside, where it might sink into the criminal swamp of the Balkans.

Yet much could go wrong. Samaras' coalition is vulnerable. Even if he commands his own New Democracy party, the Pan-Hellenic Socialist Movement has dramatically lost support and is divided under its leader, Evangelos Venizelos, who is uncomfortable with the austerity he is asked to endorse.

If the coalition holds, its policies may not be implemented. Cuts to pensions and public-sector wages, which account for two-thirds of government spending after interest payments, will stir up resentment. Because the private sector has shrunk, many families depend upon a pension or public-sector wage to put bread on the table. Even if the prime minister is determined, many politicians, with an eye to what's next, will seek to protect their clients.

Most worrying of all is the economy's inability to grow. As long as the threat of a euro exit hangs over Greece, credit will be scarce, foreign capital will stay away and investment will stall. As fiscal tightening forces down wages and demand, so the economy will shrink. Even if the government manages to cut planned spending and introduce a new property tax as promised, a shrinking economy will make it miss its targets -- opening the door to eurozone demands for even more austerity.

The recession will eat away at the center parties in Greece. Syriza, an opposition hard-left alliance, stands every chance of gaining support.

As you gaze out at parliament from the office of the finance minister, the glass pocked by a bullet hole from some forgotten demonstration, the grim prospect is of a hard-left government vying against hard-right law enforcement.

Already, large Greek firms are guarding against a Syriza victory by exploring how to move their listings abroad. Who can blame them?

Republished from the Winnipeg Free Press print edition August 11, 2012 A15