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The Greek drama that just won't end

June 18, 2012: 9:21 AM ET

The last thing the EU needs right now is for Greece to miss key deadlines under terms of its bailout -- it may be less painful to simply give the ailing country a little more time.

By Cyrus Sanati

FORTUNE -- The results of the Greek election over the weekend may have eurozone champions and Wall Street breathing a sigh of relief, but the political and economic troubles within Greece and the rest of the eurozone remain firmly in place. Even if the victorious so-called "pro-bailout" parties were to form a government of national unity, Greece will continue to experience major economic difficulties, which will prevent it from ever living up to the terms of its 240 billion euro bailout.

As such, eurozone leaders and Greek bondholders should expect that any new government taking power in Athens will at some point need to renegotiate the terms of the bailout. Doing so doesn't mean Greece will renege on all its commitments or leave the euro – no one wants to see that. Therefore, the European Union and the International Monetary Fund would be wise to grant Greece some leeway on their repayment schedule. That way, eurozone leaders can put Greece on the backburner and focus all their attention in preventing a far more dangerous economic crisis from taking root in Spain, Italy and France.

The right-of-center New Democracy Party garnered the most votes in the much-anticipated Greek national elections this weekend, collecting around 30% of the vote. New Democracy not only trounced its traditional archenemy, the left-of-center Pasok party, which received just 12% of the vote, but also edged out  its main rival this election cycle, the far-left Syriza party, which took home around 27% of the vote.

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New Democracy, with help from the media, successfully labeled Syriza as the anti-euro, anti-bailout and anti-EU party, which, if elected, would send Greece straight to economic purgatory. While Syriza was far left (hammer and sickles were a common sight at their rallies), it wasn't as radical as it had been labeled. For example, Syriza never advocated leaving the euro or leaving the EU. It did want to renegotiate the terms of the Greek bailout, but didn't advocate totally walking away from all the country's commitments.

The popularity of Syriza's message helped propel it from virtual obscurity to the second most popular political party in the country. By the time voting came around this weekend, all the major parties said they would push for some sort of alteration in the bailout terms. While some were more radical than the others, the key was that it had become a mainstream view that the bailout wasn't working in its current form and that there needed to be a change in the terms.

So don't be fooled, New Democracy will certainly want to renegotiate the terms of the bailout if it is successful in forming a coalition government. Antonis Samaras, the New Democracy leader, argued throughout the campaign that the bailout doesn't allow enough room for Greece to grow its economy. While he is unlikely to rip up the bailout contract and start from scratch, you can bet there will be some changes.

The goals that have been set for Greece in the bailout contract with the EU and the IMF don't look too demanding – at least on the surface. The agreement basically requires Greece to close its budget deficit and move to a surplus, allowing it to service its already discounted debt load and save for the future. But Greece will need to make some gut wrenching changes if it wants to meet even that modest goal. That's because Greece's economy is simply uncompetitive on nearly every metric. For example, its exports are limited, equating to just 21% of GDP. That limits the amount of cash flowing into the country and creates large trade imbalances. Meanwhile, its wage costs are extremely uncompetitive, with a worker in Poland requiring half has many euros to do the same job as a worker in Greece.

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The country has implemented only 77 of the 150 measures required of them in the bailout agreements. But for New Democracy and Pasok, it isn't the bailout terms that bother them - after all, they are the ones who signed off on them in the first place. No, what troubles them is the timeline – all the expected changes are coming on way too fast. Greece's economy remains too weak and uncompetitive to handle anymore strain. With 22% unemployment and negative economic growth projected for the next two years, you can bet that the terms of the bailout will be amended. If not, then Greece will most likely not have enough cash to meet its rapidly approaching August debt payment.

As such, Pasok's Evangelos Venizelos, who as Greece's finance minister spent months negotiating the bailouts, has suggested pushing the timeline for Greek compliance back by a year or so to give the country some more breathing room. But if this breathing room is given to Greece, and it looks like Germany may be on board, New Democracy will need to use that time wisely. It wants to lower business taxes and the nation's value added tax (VAT) to spur consumption. That could be fruitful, or it could cause an even larger revenue gap to appear in the country's income statement.

One area in which Greece should not be allowed to slack off would be on its privatization program. The bailout originally required Greece to raise 50 billion euros by selling of state-owned assets. To date it has only sold off 1.6 billion euros worth of stuff. Samaras says he is committed to accelerating this program as a way to raise revenue to balance the country's lopsided budget. The EU may be able to capitalize on this situation of this by agreeing to stretch out the bailout timeline in exchange for a rapid sell off of assets.

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The Greek elections managed to paralyze European markets for nearly two months while bringing incredible strain on the value of the euro. With the elections over, Europe can finally get serious about solving the other problems plaguing the common currency. The banking crisis in Spain and the debt crisis in Italy are looking increasingly bad these days and will eventually need the full attention by eurozone members.

Further nonsense out of Greece is something that is in no one's best interest. As such, it may be less painful for the EU and the IMF to simply give Greece a little more time to implement the terms of the bailout. The last thing eurozone leaders need to worry about next weekend while drafting a possible fiscal union for the eurozone is some minor trouble in Athens that gets blown way out of proportion by the media and the markets. Hopefully Greece can behave itself for the next few weeks as this critical change takes root.

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