When Greek voters headed to the polls last month, they were presented with a choice between a motley assortment of radical groups and the mainstream parties. Contrary to the fears of many observers, the center-right New Democracy party eventually prevailed, and with center-left and equally establishmentarian PASOK, the Greek center held, barely. But now the new government of Prime Minister Antonis Samaras is now finding it difficult to make good on campaign promises to secure a bailout on more favorable terms than the first round.So much for that. The FT now reports that the EU and IMF have turned down Greece’s repeated requests to reduce requirements for receiving a second bailout. Citing worries that international investors would refuse to lend unless Greece stuck to a rigid reform plan, Samaras has decided to drop demands for a longer timetable in implementing new reforms.Investors’ refusal to cut Greece slack is understandable given Greece’s track record:
The troika made clear that even though economic arguments could perhaps be made for extending the programme, Greece would then need extra bailout funding, which eurozone member states could refuse to provide given the country’s lack of progress to date.Greece has missed deadlines for key structural reforms – including an overhaul of the tax administration aimed at reducing high annual levels of tax evasion, estimated at about 5 per cent of national output – because of two general elections in the past two months. This year’s budget is already off-track despite improvements in controlling spending, as revenues shrank amid a collection slowdown during the election campaign and a deeper-than-forecast recession.
It looks as though the Greeks may have overestimated their leverage. Since the Greek economy is so small, a collapse there is less dangerous than a collapsing any of the larger countries.Next step: Let’s see how Greek voters respond when they find out that their politicians were lying to them once again when they promised better terms during the election.The test of Greece’s political system has only just begun.