MARCH 13, 2015
BY JOHN CASSIDY
The Greek Prime Minister Alexis Tsipras has acknowledged that his country’s latest bailout agreement with the E.U. has left him in a bind.
CREDIT PHOTOGRAPH BY ALEXANDROS BELTES / EPA
A few weeks ago, I wrote a post saying that big European countries had outmaneuvered Greece in negotiations to extend the country’s financial bailout, resulting in an interim deal, which was signed on February 20th, in Brussels. In a rebuttal at Social Europe, the economist James K. Galbraith, a supporter of Greece’s leftist Syriza government and a former colleague of Yanis Varoufakis, Greece’s finance minister, took me to task, saying that Greece had received what it needed: some fiscal space and a guarantee of financial stability. In the Times, Paul Krugman also argued that the Greeks had done pretty well in the deal.
At the time, I didn’t respond. That was partly because I respect Galbraith and Krugman, and partly because I was hoping that they might be proved right. It was possible that I had underplayed a clause in the February 20th agreement which specified that Greece’s deficit target for this year would be set after taking account of current economic conditions, implying that the previous, patently unrealistic target had been dropped. Perhaps this really would enable Syriza to get on with the urgent task of providing some relief to Greece’s stricken economy and moving beyond austerity.
So far, however, things haven’t turned out that way. Far from enjoying some fiscal space, the Greek government has spent much of the past few weeks watching its money run out and struggling to make payments on loans that have come due. Despite the Brussels agreement, Greece hasn’t received any disbursements from the E.U., and it won’t receive any until Syriza can persuade the European Commission, the European Central Bank (E.C.B.), and the International Monetary Fund—the “troika” of financial institutions that has long overseen the Greek bailout—that its economic-reform program meets their specifications. In the meantime, Athens is dependent on the E.C.B alone for financing, and the bank is doling out credit very stringently—in the words of Varoufakis, it is “asphyxiating” the Greek government.
This isn’t happening by accident.
The February agreement was not designed to give the Greek government financial breathing room but to pressure it into acceding to the wishes of its creditors. Syriza’s negotiators did win a relaxation (albeit an unspecified one) of its deficit target for this year. But to Germany and other big European countries, the two key aspects of the deal were that the Greek government agreed to submit a reform plan to the troika (now renamed “the institutions”) for approval, and that Greece would not receive any money right away—thus leaving it hostage to the E.C.B, which is a creature of the European establishment.
With this deal in place, the E.U. is trying to squeeze the Greek government into submission. The country’s tax revenues are declining, and it is facing a funding crisis. How acute is this crisis? “In the space of the past week it has raised six-month T-bills, tapped into the bank deposits of pensions and public sector salaries, postponed government payments for supplies to the public and private sector, and approached the Greek subsidiaries of multi-national companies for short-term loans,” the Guardian’s Helena Smith reported from Athens on Thursday.
The Greek banking system, which in normal times could help to fund the government, suffered a rash of withdrawals in the weeks after Syriza’s election, in late January, and it is still dependent on outside support. On Thursday, the E.C.B, which is providing loans to Greek financial institutions solely through its Emergency Liquidity Assistance facility, said it would raise the borrowing ceiling for Greek banks by six hundred million euros. But this is only a short-term measure. If current trends continue, financial analysts say, the banks will need more credit in another week or two.
At a press conference in Paris on Thursday, the Greek Prime Minister Alexis Tsipras publicly acknowledged that the February agreement had left him and his colleagues in a bind. “One of the gaps was there was no clear reference to the issue of financing,” he said. Asked what he was going to do next, given that Greece’s creditors were “tightening the noose,” he replied, with a wry smile, “I do not feel as if I have a noose around my neck. I feel that Greece is determined to move forward along the reform process. Our partners need to understand they need to help and assist us, and leave the past as a bad memory.”
This talk of leaving the past behind sounded a bit rich, coming from someone who told Greece’s parliament, two days before, that the country had a “moral obligation” to seek reparations from Germany for its actions during the Second World War, thereby raising the possibility that the Greek government might seize some German-owned assets. Tsipras is in a tough spot, though. Some Syriza members are accusing him of capitulating to the E.U., and it is not so surprising that he has chosen to take a few shots at the Germans, whom many Greeks hold responsible for their current woes. And he made a very good point, in Paris, about the need for Greece’s E.U. partners to help his country out.
Forget, for a moment, the increasingly bitter daily back-and-forth. Since Syriza was elected, on a platform of ending austerity and throwing out the troika, it has said that it will run a primary surplus this year and will submit an economic-reform proposal to the troika—a proposal that is said to include anti-corruption measures, a clampdown on tax evasion, and moves to break up monopolies, all policies that would appeal to the E.C.B. and the I.M.F. Syriza also wants to do some things the troika might not like, such as stopping mortgage foreclosures and raising wages. Over all, though, the party has moved in the direction that the E.U. wants—too far, even, for some of its own members.
In this context, Syriza surely deserves some financial leeway to present its reform proposal and introduce some of the humanitarian measures it has promised to Greeks, such as providing free food and heating to the very poor. In backing off a bit now, the E.U. wouldn’t be giving up much. If, by the end of April, which is the agreed-upon deadline for the troika to review Syriza’s reform program, the proposals still aren’t satisfactory to the E.U., it will have the option to deny Greece more money and let the country fend for itself. But squeezing the Greek government now, when it remains committed to the agreement reached in Brussels—Tsipras reiterated this commitment on Thursday—is unconscionable.
The E.U. claims that it is merely sticking by its rule book for negotiating (or renegotiating) bailouts. But, as the Greek economic commentator Nick Malkoutzis pointed out earlier this week, it almost seems as though some prominent E.U. leaders are determined to exact retribution for uppity behavior by Tsipras and, especially, Varoufakis. “The solution here does not lie just in the Greek side getting a crash course in European diplomacy and being more circumspect in what it says,” Malkoutzis wrote. “It also requires true Europeans on the other side to quash any feelings of punishment or prejudice that are stirring within the corridors of power in Brussels and other European capitals.”
Amen to that. In Brussels on Wednesday, a team from Greece met with representatives of the troika to start going over the Greek proposals in detail. It’s too early to predict how these talks will turn out. But for Syriza to be able to sell an agreement to the Greek public, it will need to show that the negotiations have been carried out in good faith, and that a significant break with the past has taken place. If the E.U. is seen to be bullying the Greek government into capitulating, it will spark a public backlash that is likely to end with Greece leaving the euro zone.
Personally, I’m not entirely convinced that that would be the worst outcome for Greece. (James Surowiecki considered some of the potential benefits of such a move in a recent column.) But it’s not an outcome that any of the parties involved claim to want. If they mean what they say, it’s time for a change of tack, and for a display of statesmanship.