Why The Fragile Stability in Greece May Not Last Much Longer

It was late November in Athens, and the city felt empty. A string of surprise thunderstorms kept people imprisoned indoors and outside the Greek parliament in Syntagma Square—where anti-austerity protests raged throughout the summer of 2015—was bare but for a few brave tourists and one quizzical-looking stray dog watching the Evzones guards perform their distinctive, shuffling shift change routine, complete with pom-pom shoes and kilts. With so much unrest elsewhere in Europe, it would be easy to think Greece is heading toward relative quietude.

The coming weeks could change all that. On December 5, the finance ministers of the Eurozone will meet in Brussels for their last scheduled summit of the year. On the agenda is the ongoing second review of Greece's bailout program, which since 2015 has allowed the country to receive financial assistance from European creditors that will eventually total €86 billion ($91.7 billion) in exchange for carrying out reforms including shrinking the public sector, reining in government spending and raising taxes.

Athens wants swift agreement with its creditors—the European Central Bank (ECB), International Monetary Fund (IMF) and the European Commission, collectively known as the troika—on the status of the reform program, so it can move on to its other goals; securing reductions in the 3.5 percent of GDP primary surplus creditors want Greece to run after 2018, and agreeing on some level of debt relief.

The Greek government says that making good progress on these debates before the end of the year is crucial. "The worst outcome for me [in the negotiations] is: 'let's discuss it in June,'" says a senior source in the Greek finance ministry, speaking off the record so as not to compromise the upcoming negotiations. "For God's sake, let's not delay it."

The journey here has been long and arduous. In 2009, in the throes of the global financial crisis, Greece announced that it had been posting understated debt figures for years, and was shut out of the financial markets. In 2010, the three creditors issued their first bailout, followed by another in 2012.

Alexis Tsipras and his radical leftist Syriza party won a shock election victory in January 2015. International media and politicians painted it as a populist explosion. The party promised to end austerity, renegotiate the bailout conditions and put an end to corruption and tax evasion. Months of fraught negotiations led to worsening conditions, with limits imposed on cash withdrawals, and brought Greece near to a default and a possible exit from the monetary union.. Then, in July 2015, Prime Minister Tsipras, rabble rouser and former Communist, strode into Brussels for a final showdown after a snap referendum in which Greek voters had rejected an earlier deal. He stared creditors in the eyes for more than 16 hours of talks, and then he blinked first.

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Tsipras signed Greece up to a deal that led to a third bailout that August, in return for the same kind of austerity he had railed against. He returned to Greece, won a new mandate in that year's second election albeit on a 56 percent turnout, the lowest in Greek history. His government began to trudge ahead with its program of reforms and austerity measures.

Syriza has now become deeply unpopular (Greek opinion polls vary but the party hovers around the high teens and low 20s in public support in a theoretical election, down from its 36 percent vote share in last September's election), but it has managed to stay in power. The country's central bank predicts the return to economic growth reported earlier this month will continue. If all goes well, the country will leave its bailout program in 2018. The flow of refugees— hundreds of thousands of migrants landed on Greek shores in 2015 and 2016—has been stemmed by a deal between the EU and Turkey limiting arrivals. (Despite obstacles, refugee arrivals have dropped by more than 70 percent) "We are extremely close to the end of the road," says another senior Greek official, speaking off the record because of the sensitivity of the upcoming talks.

But everything could still fall apart. Greece's central bank governor Yannis Stournaras told the American-Hellenic Chamber of Commerce's economy conference in Athens on Tuesday that failure to complete the second bailout review by the end of the year was the "main risk" to the country's hard-won economic stability.

Once 2017 begins, a deal may become harder to reach. Germany's governing parties will be on war footing for a tough national election where Chancellor Angela Merkel will need to battle the hard-right nationalist Alternative for Germany party. They will likely soon be even more reluctant to agree anything that could be viewed as a concession to another country's voters. And Brussels and other Eurozone powers are about to be preoccupied with other events, too—not least the likely start of Brexit negotiations with the U.K., and elections in France and the Netherlands.

Athens, meanwhile, believes that without debt relief, Greece cannot hope to be part of a large-scale bond-buying program being run by the European Central Bank. And, the government says, Greece needs to be part of this program in order to eventually return to global bond markets and begin its journey out of dependency. The European side is more accepting of this argument than before: European Central Bank executive Benoit Coeure told the conference Monday that "there are serious concerns about the sustainability of the Greek public debt."

And Tsipras is aware of the threat of elections at home if things go wrong. New Democracy, the center-right party he defeated when he first came to power in January 2015, is surging ahead in the polls under the leadership of charismatic centrist Kyriakos Mitsotakis and is calling for an election that Mitsotakis confidently tells Newsweek it would win.

While it's clearly in the Greek government's interest to press ahead with a deal, the EU's Economic and Monetary Commissioner Pierre Moscovici has also stressed the importance of reaching an agreement before the end of the year.

Perhaps the biggest complicating factor is the position of Syriza's sometime foe; the International Monetary Fund (IMF). Right now, it is only involved in the bailout as an advisor and isn't prepared to stump up any money unless Greece's European creditors agree to some measure of debt relief for the embattled country.

That puts the Syriza government in an odd position. Historically, it has been no fan of an institution whose austerity-driven agenda is anathema to its leftist principles. "The IMF basically presents itself as a doctor but with the same recipe irrespective of the disease," says Greece's economy minister Dimitri Papadimitriou.

There's also a danger that the IMF will demand that Greece commit to implementing further austerity measures beyond those already agreed, while Athens believes it isn't constitutionally possible in Greece to commit future governments to policies in this way.

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In any case, it would be politically disastrous for Tsipras—already seen as a turncoat by his left-wing base—to have to announce yet more punishment now. And the government needs to muster whatever political capital it has left to keep its ambitious program of privatizations that covers assets such as airports and public utilities—a source of major contention within the party—on the road.

But at the same time, the government knows the IMF is its best ally on securing debt relief, its most important goal.

Other sticking points remain in the negotiations. The Greek government wants more power for trade unions than creditors would like. And it wants a reduction in its primary surplus target from 3.5 percent of GDP beyond 2018 to 2.5 percent, saying it would use the fiscal space opened up for reforms that boost competitiveness among small and medium-sized businesses, as a sweetener for creditors.

Tsipras is likely to close the year with an agreement on at least some of this, but the detail will be crucial. If he does not achieve any guarantee on debt relief, political rivals in his own party and the opposition could easily paint it as Tsipras's failure. And if the IMF proves too intractable on some of its differences with European creditors, it could still scupper the deal.

Greece is cautiously clambering back to its feet, but it wouldn't take a strong wind to blow it back down again. With the opposition confident of its popularity and taking every opportunity to attack Tsipras, the once-radical Syriza party split on its new austerity agenda, and the IMF and European creditors still squabbling over the economics, everyone involved must work hard to ensure 2017—already set to be a tense year for the continent—doesn't add another Greek crisis to Europe's troubles.