It’s only been a few years since his “nightmare” ended. Grexit. Unfortunately, creditors investors and Greece’s allies should start worrying about the country again, writes journalist Hugo Dixon in a Reuters article.

Surveillance scandal threatens his government Kyriakou Mitsotakis and leads to long-term political instability, Dixon says. This is not a repeat of the crisis that almost led to Greece leaving the eurozone.

However, the country’s high deficit and debt, which is 189% of GDP, are a source of concern at a time when both energy prices and interest rates are rising, the observer continues.

Dixon then recalls that earlier this month, PASOK leader Nikos Androulakis accused the National Intelligence Service of tapping his phone. There was even an unsuccessful attempt by an unknown source to install Predator spyware on the phone.

For his part, Prime Minister Kyriakos Mitsotakis said he did not know about the phone tapping, noting that he would not have approved of it if he had known. In addition, the government denies buying or using the Predator.

It is also noted that today’s meeting at the plenary session of the parliament at the level of leaders, the peak of which was the topic of surveillance, was held in extremely high tones.

Political instability

Dixon says that while Mitsotakis has a stable majority in parliament, he will have to start elections no later than August 2023, in which proportional representation will be applied, leaving no party with an absolute majority. Then a second election will be held in accordance with the new law, which will give the first party a large number of bonus deputies.

Dixon notes that polls have previously indicated that Mitsotakis will win or come close to a majority in this runoff. But after the outbreak of the surveillance scandal, this is no longer possible, the journalist emphasizes.

In addition, it will be difficult for him to form an alliance, since the surveillance case concerned the leader of PASOK, that is, the party with which New Democracy is most likely to cooperate. Based on current data, adds Dixon, the party is extremely hesitant to reach an agreement with Mitsotakis.

At the same time, SYRIZA will find it difficult to form an alliance. Although he will try to negotiate with PASOK, it is unlikely that the two parties will garner a majority. They could only achieve this through a paradoxical alliance with the Communist Party and the far right, Dixon notes.

However, he says there are other possibilities. New Democracy could replace Mitsotakis with a leader PASOK would be more willing to work with. Another possibility would be a larger alliance between parties led by a technocrat. However, none of the above scenarios seem terribly credible, the columnist emphasizes.

Meanwhile, many questions about the surveillance scandal remain unanswered. If there are new revelations that could harm Mitsotakis, then it will be difficult for the Greek prime minister to “hold out” until the elections.

high expectations

Greece’s investors and allies expressed general enthusiasm for Mitsotakis’s leadership. Dixon said his positive approach to business and commitment to modernizing the country attracted capital.

At the same time, his promise of prudent fiscal policy has reassured the European Union. In addition, he handled the pandemic well, promoted the digitalization of government, and took steps to decarbonize the economy. Moreover, his tough stance on the Russian invasion of Ukraine was welcomed in both Brussels and Washington.

However, according to Dixon, concerns remain. According to him, Mitsotakis did not seem to have much interest in fighting corruption. In essence, he started with a clean slate with financial industry executives accused of disloyalty, while at the same time granting amnesty to major tax evaders, the columnist reports. He also opted for a centralized government, changing the law so that the intelligence department was taken over by him.

At the same time, Dixon writes, fiscal policy has been looser than might be expected for a country that has recently gone through a particularly dangerous financial crisis.

The government has allocated a lot of money to support businesses and workers during the pandemic. It has also spent more of its GDP than any other EU country. on measures to support consumers and businesses in the face of the energy crisis, according to Brussels-based think tank Bruegel.

In addition, the government will run a primary deficit of about 3.5% of GDP this year, according to economist Miranda Xafa.

Populism flourishes

As Dixon notes, the new government is less likely to have a positive approach to business than the current one. There is also the risk that Mitsotakis will take populist measures – in particular spending more money to reduce the burden of electricity bills – in an attempt to stay in power. As one electoral process follows another, all parties will have an incentive to promise more government spending, Dixon said.

Greece’s creditors might argue that it doesn’t matter much. The country’s debt was restructured as part of the rescue programs. The country is not obliged to pay principal or interest on debt to the EU. by 2033. “Furthermore, while debt is rising, the combination of inflation and economic growth means that the burden has been reduced as a percentage of GDP: the debt-to-GDP ratio dropped by 4 percentage points in the first quarter of 2022.

At the same time, E.E. may want to avoid friction with Greece, given that Europe is in the midst of a geopolitical and economic crisis. He has already suspended the bloc’s fiscal rules aimed at keeping government debt and deficits under control. And the EU is much more concerned about the instability in Italy after the fall of the Draghi government, the observer emphasizes.

These factors protect Greece in the short term. But, according to Dixon, they may not be enough if there is a long period of uncertainty. After all, the government still needs to finance its current deficit. From 2033, repayment bills and interest will increase dramatically.

“There are already signs that investors are worried. Greek 10-year government bonds yielded 3.9% on Friday morning, up 93 basis points from last month and 256 basis points higher than their German counterparts. While government bond yields are rising globally, Greek debt yields have recently risen faster than even Italy’s, which rose 34 basis points to 3.6% last month.

Moreover, once the energy and geopolitical crisis is over, the EU may not want to turn a blind eye to what is happening in Athens. Last week, the European Commission ended its “heightened surveillance” of the Greek economy, on the logic that the country was finally out of the crisis.

But, Dixon concludes, he may end up regretting this decision.

^{Source: Reuters.}