Haircut or hang on? A look at Greece's debt debate before elections

ATHENS, Greece – Greece goes to the polls Sunday with voters given a tough choice over how to handle the country’s debt after six years of recession badly weakened its economy.

Here’s a look at what’s at stake:



The national debt topped 320 billion euros ($369 billion) last year — equivalent to nearly 30,000 euros ($34,600) for each Greek resident.

Although Greece reached a major restructuring deal with private creditors three years ago, its economy has shrunk by a quarter during the recession to an annual output of 188 billion euros ($217.5 billion), making debt repayment more difficult.

Greece has received nearly all its bailout money and is hoping to switch to a softer form of support, known as a precautionary credit line, helped by a gradual return to the markets. The economy is predicted to grow at nearly 3 per cent with a balanced budget in 2015 after a long decline.



Conservative Prime Minister Antonis Samaras’ term should expire in mid-2016 but he was forced to call elections when opposition parties refused to back his candidate for president.

Samaras is trailing the left-wing Syriza party in opinion polls and has failed to narrow the gap as voters face hardship from austerity measures imposed during the bailout. The conservatives say cost-cutting reforms are modernizing the economy after years of over-borrowing, insisting the national debt is sustainable and will be repaid in full.

“A few months ago, we prepared to start 2015 with confidence,” Samaras told business leaders this week. “Now they have dragged us to elections and, by the day, are sinking the country into uncertainty.”



The party campaigned on demands that other eurozone countries forgive at least half the bailout loan money received since 2010 — terms similar to those won by West Germany after World War II.

Syriza’s charismatic 40-year-old leader, Alexis Tsipras, is calling for a eurozone debt conference. The party argues that insistence on full repayment under current terms would only crush the Greek economy and be counterproductive. The party is seeking short-term help with a freeze on interest payments and longer-term aid with restructured bailout debt and repayment levels tied to domestic economic growth.



Senior Syriza economic planner Giorgos Stathakis believes a new debt deal could be possible by the end of 2015. But he added a Tsipras government would no longer talk with negotiators from the “troika” of the International Monetary Fund and European Union and central bank, but instead deal directly with governments.

“All the measures we will take will be based on a new agreement with the Europeans. I believe that agreement can be reached very quickly,” Stathakis told The Associated Press. “We won’t take unilateral actions.”



Increasingly, analysts think there might be room for negotiation — calming markets that initially reacted to the snap Greek election with alarm.

“Extreme voices always generate a lot of anxiety and at the moment we have political instability … (with) two seemingly different points of view as to how to handle the Greek crisis,” independent economist Vagelis Agapitos said. “I personally believe the two positions are not that different.”

Syriza would likely need a coalition partner to govern, meaning it may have to moderate its position.

Complicating the picture further: Lenders now have less leverage with Greece running a budget surplus, while a risk of default in Athens is less likely to affect other eurozone members.



EU leaders and the IMF have stressed they will hold Greece to its commitments, but played down concerns of an exit from the euro.

Eurozone lenders have already promised Greece improved debt terms in response to a balanced budget — providing the new government some leeway.

Zsolt Darvas, a senior fellow at the Brussels-based Bruegel think-tank, calculated that relatively small changes to existing debt deals could save the Greece equivalent of nearly 32 billion euros ($37 billion), or 17 per cent of Greek gross domestic product — using a combination of longer maturities and a more flexible interest rate system that would axe a small profit still being made by most eurozone lenders.

“Some commentators … say that is not enough and that Greece needs much more,” Darvas said. “But I think 17 per cent of GDP is quite a lot. And I think if Syriza would be able to achieve that, they can declare that, yes, they delivered what they promised.”


Associated Press journalist Theodora Tongas contributed to this report.


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