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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