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Greece turns from Sisyphus into Hercules

A protester kneels to pay his respect in front of a Greek flag during an anti-austerity rally in Athens, Greece, June 29, 2015. REUTERS/Yannis Behrakis

LONDON (Reuters Breakingviews) - Greece’s deal with its creditors makes it look a bit less like Sisyphus. But it still resembles a highly challenged Hercules.

The weight of the country’s debt – equivalent to around 180 percent of GDP – evokes the mythical figure who had to push a stone endlessly up a hill. That’s less the case after a group of its euro zone creditors agreed on Dec. 5 to tweak the terms of existing borrowings. Some will now be repayable later, while some floating-rate debt will be swapped for new borrowings fixed at current low rates. That’s helpful without being a giveaway.

Some hefty tasks remain. Greece plans to privatise 6 billion euros of state assets. But in 2016 it only notched up 500 million euros. More onerous is the demand for a fiscal surplus, before interest payments, of 3.5 percent – something almost no European countries have managed for long. Greece, and lender the International Monetary Fund, say it can’t be done. Germany disagrees.

Think of that number not as a calculation but as a negotiation, and the picture clears a little. Germany doesn’t want to go too easy on a country whose previous two bailouts failed. Greece’s increasingly unpopular ruling party, Syriza, doesn’t want to appear weak, or agree to targets that cannot be met. But all know that if Athens can clean up enough to regain access to global debt markets, there is hope.

There is therefore room for a compromise. A final deal might see Greece meet the 3.5 percent target but only for a year or two – or lower the target to, say, 2.5 percent. But Athens will have to give something to get something. Half of the country’s wage and pension earners pay no income tax. The state transfers around 10 percent of GDP into the pension system – four times the euro zone average – yet the government denies it is too generous.

Greece can’t push too hard, and nor should it. German and Dutch elections are coming. Euro leaders won’t want to appear too soft in front of Italy, which just tossed out reformist Prime Minister Matteo Renzi and needs to recapitalise its banks. And if a deal really can’t be reached, Prime Minister Alexis Tsipras may resign. That could usher in a government that is more co-operative, if not more Herculean.

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