Greece is watching the unfolding crisis in Italy with growing nervousness. Events in Rome are eliciting a sense of deja vu in Athens, the capital long on the frontline of the eurozone crisis. And nerves are being rattled.
“We want a stable, democratic and pro-European Italy,” the country’s foreign minister, Nikos Kotzias, told reporters. “We are worried that if there is instability and it has an impact on the financial situation, this could create problems for us.”
The turmoil in Italy could not come at a worse time for Greece. After almost a decade of exclusion from international markets, the debt-stricken nation had set its sights on returning to much-needed normality this summer.
Hopes had been high that when it emerged from its third multi-billion EU-funded bailout programme, Athens would regain market access. But on Wednesday government officials, bankers and analysts were decidedly downbeat.
All agreed that with political uncertainty raging across the Ionian Sea, and global investors jittery, the prospect of Greece tapping markets any time soon was beginning to resemble a pipe dream.
With soaring bond yields – interest rates on government borrowing – it was out of the question the country could afford the interest rates that would allow it to assume the mantle of post-bailout normality.
“What is happening in Italy worries us immensely,” a senior Bank of Greece official said. “The bond markets have gone mad in southern Europe. With such yields it is totally prohibitive that Greece could return to them when the programme ends.”
As the eurozone’s weakest link, Athens has long been vulnerable to outside threats. Addressing Greek businesspeople on Tuesday, the prime minister, Alexis Tsipras, warned that the Italian turmoil could not only effect bond prices but negotiations to ease the country’s staggering €320bn debt pile.
“It would be a mistake to think that at the end of the programme [in August] everyone will be queueing up to lend to us at rates similar to those of Germany,” he said, insisting it was now vital the country was put on a path to sustainable economic recovery.
“The positive outcome of the Greek adventure is more necessary than ever for the entire eurozone,” he told the gathering.
Once vehemently anti-austerity, Tsipras’ Syriza party has seen its popularity plunge as a result of enforcing sweeping wage and pension cuts in return for rescue funds.
The leftist-led coalition says debt relief is crucial if Athens is to stand on its feet again. Ongoing negotiations have been problem-plagued given the amounts owed to euro area members and the reluctance of states to commit more money to a nation that has already been the recipient of the biggest bailout in global financial history.
“If Italy starts disobeying the rules or becomes disengaged from the euro, it will be that much harder for Greece to get a good agreement on debt relief,” said the political analyst Pandelis Kapsis. “If europhobic, xenophobic forces hold sway, there’s a possibility Rome could say ‘we prefer the Greeks to leave the euro, we don’t want to give them any more support’.”
With general elections scheduled for September 2019, Tsipras has made a “clean” exit from the excoriating oversight of international bailout creditors a central theme in his government’s effort to recover lost ground. Any suggestion that Athens be given a new financial lifeline – a proposal openly endorsed by the governor of the Bank of Greece – has been fiercely rejected.
Italy’s financial turmoil has put hopes of “a clean exit,” on the back burner. “The government’s narrative of clean breaks, and going it alone, is over for now,” a well-placed official conceded. “Events in Italy are changing everything.”
