Published on 19 Feb 2015

Greece caves in a bit – but not enough for Germany

Various market analysts were tweeting that Greece had “blinked” in its stand-off with the eurozone authorities, and that it was all over bar the shouting. But it’s more complicated – as the German finance ministry immediately noticed.

What Yanis Varoufakis caved in on was, first, recognition that the old bailout deal was binding on Greece. However the words were: “binding vis-a-vis its financial and procedural content”. That was caveat number one.

On the fiscal surplus demanded by the troika, it says Greece will “attain appropriate primary fiscal surpluses” and that the fiscal targets for 2015 take into account the present economic situation. That is code for saying the mandated 4 per cent fiscal surplus is no longer binding.

Read more: Leak and counter-leak – how not to achieve a Greek deal

The third area of unclarity was over how much of Syriza’s programme they were going to be allowed to implement. Varoufakis says: “Any new measures be fully funded while refraining from unilateral action that would undermine the fiscal targets, economic recovery and financial stability.”

Eagle-eyed lawyers will have spotted that all other forms of unilateral action remain possible, and that without a monitoring authority sitting closely next to Greek ministers, it’s all open to interpretation.

Finally, the Greek desire to review the current bailout deal “on the basis of the proposals of, on the one hand, the Greek government and, on the other, the institutions” – i.e. the EU/IMF.

After two attempts to craft a compromise, this one, with Varoufakis signature and a Hellenic Republic letterhead, would not have been written without the explicit support of Juncker and Dijsselbloem.

For ministers who have barely seen their own country for the past two weeks, it was a compromise wrought out of exhaustion and the implicit threat from the ECB to pull the plug on Greek banks as early as next Wednesday. It still left Greece a lot of room for manoeuvre to do its domestic programme, as all departures from the memorandum, which mandates the austerity programme of the old government, would become matters of interpretation.

However just as everyone was declaring Game Over, the German finance ministry briefed journalists it would reject the deal.

The poker game is not over, therefore. And we will keep you posted.

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13 reader comments

  1. Derek O'Flaherty says:

    More “bait an switch” tactics? Are Juncker and Dijsselbloem trustworthy or do they hold the towel in place over Greece’s face while Schauble powers the water?

  2. Pavlos says:

    I am a Greek living in the UK for the past 15 years. Despite my efforts to remain unbiased I might not be able to, so apologies.
    May I please ask how would it feel to have only one family member left employed and this with a 25% pay-cut at a personal level? This is an oversimplified version of what happened in Greece.
    As for what is going on now with the DEALS? Paul here has given an insight as to the facts.
    How easy would it be for me to point fingers on the bad Germans etc etc. But it is not really fair, is it? First and foremost we allowed ourselves in this position. But my question is OK we messed up. But are we to be punished, humiliated annihilated because we dared to live beyond our means (like most households in the UK do for example)?
    Yes I can hear the “why should the german/english/spanish taxpayer save you”? Well in theory they are not really saving us. The money “Greece” received did save the banks that so eagerly gave away their money to THE awful Greeks (how did we manipulate these WISE institutions is beyond me…). Something like black rock did to its lenders
    But there are two questions here:
    Why not treat Greece like banks (i.e. when they fail they are bailed out with bonuses etc untouched)
    Why not give Greece a chance to repay said money? Or at least as much as possible. I really do not understand how struggling an economy can be good for anyone…
    Greece has shown its solidarity to Europe through History. By far not a flawless nation (who is???) but at least we did not initiate wars, financial crises etc (14 million lazy, liars, uneducated, corrupt party animals as we have been described CAN NOT have such a lethal impact in the world surely???)
    Please, do see the humans before the numbers, the hatred, the fear of the different and please do not be judgemental. The English public rose in exemplary heights to support so many humanitarian crises all over the world. Another one is unfolding on a daily basis in your neighbourhood: Europe (Greece, Spain, Portugal, Ireland etc). Just because the media do not say so does not mean it is not so.

    We are going to be the first to go down one way or another, but are we going to be the last? I wonder

    1. Suki says:

      ‘We dared to live beyond our means, like most households in the UK.’ Very few households in the UK live beyond their means. They may take on loans – a mortgage for instance, to buy a house, but they give an undertaking to pay that loan back at a specified rate, within a specified time. If they do not pay as agreed, they will lose their assets and face bankruptcy. Greece was bankrupt back in 2010 and asked for help from other countries. The majority of the debt is now owed to the taxpayers of Germany, France, Italy and indeed to some Eurozone countries who have far lower average salaries than Greece. I understand that the money owed to France represents €3,500 for every French family.

      1. sofia says:

        All European governments eagerly agreed to take the money of the European people in order to save the financial institutions that were exposed to a possible Greek default. The responsibility for this lies with the politicians, shouldn’t they make a risk assessment and evaluate the situation? If they did (and of course they did) doesn’t that mean that they chose to save the banks even if that meant they were risking public money? And of course the crisis didn’t happen because the Greek families were taking big loans (that they are still paying back anyway) the crisis is a result of high level corruption for many years that includes deals with major European companies. I’m not saying that Greek people have no responsibility over their fate, the same as all people in the world, we are responsible for voting these corrupt governments, but please don’t be so fast to judge

    2. Tressa says:

      I totally agree! I wish we had never entered the euro. I just hope that we leave it now. What is happening is disgusting and humiliating! Arrogance and stupidity go hand in hand!

    3. Bruno says:
    4. Giulio says:

      Thanks pavlos for enlightening the situation so clearly. But foremost we have to admit that the eu is not nealy the community our founders inteded to create after ww2. I don’t know if it’s a language barrier or perhaps just our history of violence but we’re far from preceiving eachothers as peers. greece is just an annoying guest speaking to loud ruining an elegant dinner. Once greek children will starve covered by buzzing flies you will have Save the Children organising elegant dinners in London or Berlin with brilliant spekers in suit defending the cause of this poor country hit by those bad people who rule the world. And everybody will be so moved and feel so relieved after donating 100£

  3. elli says:

    Exactly who are the players in this game? It seems highly improbable that Juncker and Dijsselbloem would accept anything damaging for the Eurozone, so why couldn’t the German finance ministry wait for a formal meeting before rejecting the Greek proposal- if only for the sake of pretences?
    It seems like pointless callousness and like an excessive demonstration of power from the German side at this point. I also sense a hint of pride not only for the prestige of the “stong partner” who lends a hand to help the other (and his own over exposed banks) out, but also for the advantage of moralising on a very profitable business. And for the German public it seems to be working – look at their triumphant headlines!
    Is the whole thing going to work? Probably not, I am afraid…

  4. The Voice of Reason says:

    Greece has to leave the Euro. They have to do through the pain of default and the re-introduction of the Drachma. There is no alternative for them. And as sorry as I feel for the ordinary people – and I really do – I do not think the ordinary people are entirely blameless for tolerating a situation of industrial scale tax evasion for generations. Of course the rich, and the political class they own, are far more guilty but it is up to the Greek people to vote for a party which will sort it out and not seek German charity. You don’t cure a junkie by giving him more heroin.

  5. BlankCheque says:
  6. yxamonakis says:

    When they say they want the government to stick to the agreement do they also mean continue to turn a blind eye to tax evasion and smuggling , to corruption and cronyism, to increasing poverty and unemployment and further reducing the living standards for the majority of people?
    And why is it Eurogroup did not apply any of the same pressure on the previous government to actually deliver some of the ‘prior actions’ that were never implemented in the last 2 (or many more) years?

  7. Frank Wilson says:

    Good stuff as always from Paul, who obviously has good sources in both Greece and the rest of the eurozone.

    Interesting to note that Alexis Tsipras today (Thursday) spent almost an hour on the phone with Angela Merkel, he also talked to Hollande, and he still had time to board a Beijing warship paying an official visit to Piraeus, where he spoke in Chinese (to the delight of his People’s Liberation Army navy warship hosts) and praised the struggles of the Chinese and Greek people for justice.

    The one thing the US Sixth Fleet in the Mediterranean (or what’s left of the Royal Navy’s Mediterranean Squadron for that matter) does not want is anchorage facilities for Putin’s expanding Black Sea Fleet and/or the Red Army Navy in Greece and Cyprus.

    Perhaps that explains President Obama’s calls to Merkel asking the Europeans (and the Greeks) to reach a solution.

    And it probably comes as no surprise to hear that Slovakia Prime Minister Robert Fico has been telling the FT that he is relaxed about a Grexit, because his low income and unemployed electorate would not want to see their loans to Greece slashed.

    The irony of course is that Fico has been campaigning on a strong anti-austerity platform, and that any measures to boost economic growth in Greece and the rest of the eurozone would benefit Slovakia.

    Fico and leaders of the Baltic states have been on the phone to the Germans complaining about apparent favourable treatment for Greece, forgetting perhaps that a relaxation by Germany would boost their low wage, low cost economies with more investments and more trade.

    Looking forward to keeping in touch with the Greek story on Channel 4 news, because Paul also gives us the real picture in Greece rather than the picture that newspapers like Bild in Germany would like us to see.

  8. Alvin D Hofer says:

    More a question than a comment: What would the conseqences be of the EU’s “pulling the plug” on the Greek banks? Such metaphors do not inform me, a financial novice. How would that consequence affect the Greeks who have been and are now suffering anyhow? How would it affect the Greek elite? How would it affect the political parties, especially Syriza?

    Such clarifications are essential for me to understand the pressures on the Greek PM in his negotiations.

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