These included streamlining the VAT system, broadening the tax base, reforming the overgenerous pension system and cutting public spending. This was all part of an agreement on the part of its creditors to bail out the Greek economy and return the country to economic stability within the Eurozone.
However, the measures have proved deeply unpopular, leading to mass protests and rising antipathy towards Brussels, the Eurozone and Tsipras, whose popularity polling is at an all-time low since coming to power.
"That meant that Greece needs to sign on to a multi-year fiscal adjustment program, agreed in September 2015. Now, the topics of negotiation is 'how will Greece achieve this magnitude of adjustment and which measures are the best to achieve that," Yannis Koutsomitis, world politics & economy and European affairs analyst told Sputnik.
#IMF's suggestions to #Eurozone for achieving #Greece debt sustainability.
— Yannis Koutsomitis (@YanniKouts) January 26, 2017
Extensions & grace period are possible, rate is subject to markts https://t.co/pyYQxRheq2
"The Greek Government opposes legislating up-front measures for [future] years, saying this is against the democratic role and the sovereignty of the country. On the other hand, the creditors insist that, because the Greek Government has lost credibility within the Eurozone, they need to show they are willing to adapt to the terms of the agreement," he said.
"The Greek Government has raised the stakes on the domestic and political fronts by saying they are not willing to sign up to any new austerity measures, because this is their mandate from the 2015 referendum in which they said, 'we will apply these austerity measures now, but after 2018, we should be able to release ourselves from the Troika memorandum and the austerity [program].' So it will ruin the whole narrative of the Greek Government to the electorate. It is a huge issue for the Greek Government, right now," Koutsomitis told Sputnik.
Closed Economy
The EU's assessment of the Greek problem is that its economy had always been relatively closed, and controlled by vested interests. When the country joined the euro in 2001, it was suddenly able to borrow money at a far lower rate than previously. As a result, the government boosted spending.
Yesterday's #Eurogroup discussed #Greece, draft #budget plans for Spain & Lithuania & #euro area econ policy. More: https://t.co/iDPHzAnvpm pic.twitter.com/hUnSe1RgZU
— EU Council (@EUCouncil) January 27, 2017
At the same time, revenues weakened, in part because of a poor tax administration. Public debt soared quickly. Wages rose too fast and the country became too expensive to compete internationally. In the past, this would have caused the drachma to devalue against other currencies. In the euro area, that option no longer existed. The result was a contracting economy and unemployment rising to alarming levels.
The options open to Tsipras are few — especially with a low popularity rating.
"One easy guess is to go to the polls again, but I'm not sure that's the way out for Alexis Tsipras. My approach would be that he will seek support from the opposition and try to get a larger majority to back up a needed compromise with the creditors. If he does not find the support he needs to legislate for new austerity [measures] all options are open — maybe even a referendum on Greece's support for the Eurozone."
"There are various steps before [a full 'Grexit' from the EU] because I don't think a reasonable question would be, 'Are you willing to continue being part of the Eurozone or not?' But it could be a more complex question that could lead, eventually, to Grexit," Koutsomitis, told Sputnik.
