Renegotiation of Greece's 130-billion-euro ($165 billion) bailout program are almost inevitable after elections Sunday, analysts say, but talks will be tough and both sides will have to give ground.
The International Monetary Fund and the Germans who dominate EU policy toward Greece have insisted on holding any new government to the promises made in the March deal.
But they will have little choice but to enter new talks with Athens, which is already well behind on meeting commitments.
Analysts say adjusting the program will be easier if the conservative New Democracy Party led by Antonis Samaras takes the lead in a new government: Samaras has already pledged to stick to the program, albeit with modifications.
But New Democracy is running even with the hardline Syriza party led by Alexis Tsipras, who has only in recent days called to renegotiate the rescue pact after saying for weeks it should be torn up completely.
Any compromise will force Europe to weigh the risk of Greece leaving the euro against appearing to other bailout clients too lenient toward Athens.
“There is always room for adjustment of terms,” said former IMF economist Simon Johnson, an MIT professor.
“The question is whether the new government wants to negotiate in good faith and whether the European Union still wants to help. The IMF will do what it can, but the options are running out.”
Jacob Kirkegaard of the Peterson Institute for International Economics said a deal is likely, regardless of who takes power.
“Even a Syriza victory in my opinion is not going to lead to a Greek exit from the euro, which I continue to believe is a very very low probability event,” he said.
“The reality is that a euro exit is consistently opposed by about 70 percent of Greek voters.”
Both the IMF and Germany's European partners have signaled some readiness for adjustment, calling on more growth-oriented policies to replace the harsh austerity prescriptions in the bailout.
The compromises will have to come from the EU side of the deal, said Kirkegaard, because the IMF was explicit in March that there was no more flexibility on the terms, after Greece already failed in the first rescue program.
“I think that it will probably be quite difficult for the IMF to agree to any renegotiation almost irrespective of who is elected,” he said.
By comparison, the EU is “essentially relatively unbound by the rules-based approach” of the IMF, the analyst added.
“That means to me that they can give whoever wins the Greek election some leverage on the margins, on the austerity, meaning that you can probably prolong the deficit targets, push them out to the future.”
On the other hand, structural reforms that Tsipras has attacked will be harder to bend.
Economist Adam Lerrick at the American Enterprise Institute said that in a compromise, the new government would agree to carry out the European Commission's policy prescriptions, while the body would give the new leaders more time to reach their target.
How far Europe will go is very much tied to its willingness to again trust a government that has completely failed at one bailout program and is, only three months in, failing on the second, said Lerrick.
Any more slippage by Athens makes the European disciplinarians appear unwilling or unable to enforce the discipline needed for a fiscal and economic union.
“If Europe cannot enforce those rules, then the fiscal compact cannot function,” Lerrick added.
Both Samaras and Tsipras will be under pressure to show voters they can deliver some easing of the terms. Having promised to make the EU succumb, Tsipras will have a harder time, Lerrick added.
If Syriza takes power, “you will see at least one month, two months of negotiations” that will add more strain on Greek finances, the analyst said.
Michalis Psalidopoulos of Tufts University said he doubted Tsipras has the political weight to compromise with the EU and the IMF.
“Given the fact that Syriza consists of 12 left-wing groups and that there is no single voice to be heard from them, one can predict very little what will happen, which group will have the upper hand,” he said.
On the other hand, Syriza talks about seeking to raise more revenue for the government from tax evaders - a core theme of the IMF's prescriptions for the country.
“If Syriza would propose concrete measures in that direction, compromise talks might show results,” Psalidopoulos added.
Kirkegaard suggested that a Samaras-led government would have the most leverage.
“What the Europeans are really looking for is a workable, trustworthy partner in Greece,” he added.
“Fundamentally, they will not trust Alexis Tsipras, and they are also of course afraid of any precedent that additional giving in to these kind of populist demands will breed in other countries in the eurozone periphery.” - Sapa-AFP