Athens’ decision to accept a eurozone loan extension shows the troika did not really want to negotiate with Syriza – it wanted capitulation
Figures depicting the Greek PM Alexis Tsipras armed with a catapult and Angela Merkel as a cyclops. It seems Tsipras may have missed his one best shot. Photograph: Patrik Stollarz/AFP/Getty Images
by Larry Elliott at The Guardian
Thursday 19 February 2015 12.24 GMT
Last modified on Thursday 19 February 2015
The white flag has been raised over Athens. Greece has bowed to the intense pressure of its eurozone partners and will stick to austerity. After defiantly saying for the past three weeks that it would end the country’s fiscal waterboarding, the Syriza-led government is suing for peace.
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That, bluntly, is the only way to interpret news that Greece has formally asked for a six-month extension to its bailout agreement. There is no longer the pretence that the bailout is to be replaced by a loan agreement with no strings attached. The hated troika of the European Central Bank (ECB), the European Union and the International Monetary Fund will be monitoring Greece’s economy for the next six months, something that has been anathema to Syriza until now.
The Greek government has some demands of its own. It wants to negotiate a new growth deal for the four years until 2019. It is asking for debt relief under the terms of the bailout agreement signed in November 2012, and it wants to be able to take steps to deal with the humanitarian crisis caused by the 25% collapse in the size of the economy over the past five years.
None of these demands are unreasonable. Indeed, they are all entirely sensible. As Dhaval Joshi of BCA Research has noted, for every euro the Greek government has saved through spending cuts or tax increases the economy has contracted by €1.20. Austerity has resulted in Greece’s debt to GDP ratio going up, not down. A change of tack is overdue.
It is unlikely, though, that Syriza will get much of what it wants. The rest of Europe does not really want to negotiate with Alexis Tsipras and his finance minister, Yanis Varoufakis. It wants capitulation.
What’s more, it is in a position to get it. Tsipras has two big weaknesses. Firstly, Greece is suffering from capital flight and is dependent on emergency support from the ECB for its banks. The ECB has just increased its funding, but not by as much as Greece would have liked. The life support could be cut off at any time.
It is unlikely Syriza will get much of what it wants. Europe does not really want to negotiate. It wants capitulation
Secondly, and perhaps more significantly, Greece has failed to deploy its most potent weapon – a threat to leave the euro. For all the talk in Brussels and Berlin that the single currency could withstand a Greek departure, the threat of WITHDRAWAL would have put the frighteners on. Would the euro group really want to risk chaos, given the shaky state of the economy? Would Angela Merkel want to go down in history as the German chancellor responsible for rolling back more than half a century of European integration?
Without this threat, the rest of the eurozone doesn’t have to offer Tsipras much, and it won’t. Greece will be allowed to run a slightly smaller budget surplus and its debt repayments are likely to be extended over a longer period and at lower interest rates. Some of the austerity measures may be eased a bit.
But a deal along these lines won’t deliver much to Greece in terms of EXTRA CASH. After raising expectations, Tsipras is likely to have real trouble selling it to the people who voted for him less than a month ago.