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Moment of reckoning for Greek government

01 May 2015

London Business School expert says Greece faces stark choices

michaeljacobides


As the moment of reckoning for the Greek government draws near, the stark choice of default and a potential Greccident on the one hand, or a dramatic climb-down, a volte-face and the abandoning of many electoral promises on the other hand, is coming in sharp contrast, a leading expert from London Business School has said.

Michael G. Jacobides, Sir Donald Gordon Chair of Strategy and Entrepreneurship, London Business School, made the remarks following the announcement earlier this week that Europe's creditor powers have ruled out another "big" bail-out programme for Greece.

Considering the options left for the country, Professor Jacobides said: “The Greek government, with its back against the wall, seems only now to be changing its rhetoric, internally and externally. Yet there is still no clarity and Mr Tsipras has not been able to provide a sense of direction. Internal strife seems to grow within Syriza, where left hard-liners or simply overly naïve MPs still think that confrontation, perhaps even Grexit could be beneficial.”  

Professor Jacobides says that press and media support towards Mr Tsipras has also changed direction. 

“The press and media, which had shown a remarkable support for Mr Tsipras (perhaps due to his threat of re-examining the licenses and finances of their owners), is starting to become more critical, and the Greek public opinion is only now beginning to realise what the real options are. Syriza’s use of nationalistic bravado, mixed with calls for social justice and a vilification of Germans are no longer able to easily overcome the growing fear of the consequences of confrontation, as the economy stalls and concerns mount.” 

The government's reform efforts have caused grave concern, as they seem to be heading in the wrong direction and away from what Greece’s creditors (and most ordinary Greeks) would want, Professor Jacobides points out. 

“Three months in government have led to a lot of posturing and little action. More alarming yet, action seems to be in the wrong direction, moving the country back into the politicised 1980s, including a disastrous set of education reforms (including eliminating entrance exams for the elite schools and substituting them with potentially suspicious “ballots”). Also, changes in public administration that remove incentives for public sector employees to be productive, and laws that soften policing potentially releasing big numbers of criminals, including terrorists, on humanitarian grounds, do not seem to be generating broad support.” 

And this is not the only thing causing concern. Professor Jacobides continues: “The unprecedented approval of Mr Tsipras and his government a few weeks ago is taking a rapid hit, and this may be what will ultimately provide the pressure to face reality. The opposition is still unable to react, with unpopular Mr Samaras refusing to quit his party post-election defeat, forestalling a rebound of ND or other parties. Yet as this uncertainty lingers, deposits continue flowing out of Greek banks, and by 7 May, the ECB may need to consider a haircut to Greek paper, cutting off liquidity and leading to capital controls similar to those in Cyprus.” 

Looking ahead to what’s next for Greece, Professor Jacobides says the next few days and weeks should signal the beginning of dramatic political changes. “While a harsh deal for Greece may happen, the risks of an accident remain high. Politics and inertia, and the political economy of entrenched interests still stand in the way of a rational deal. Greece may still become a salvageable economy, driven down the drain because of politics and the inability to reform the administration.”