20 Feb 2015

Greece gets its deal.. But if the detail’s wrong ‘we’re finished’

The eurozone and IMF have done a deal with Greece, extending its bailout for four months in return for a commitment to run all policy measures with significant economic impact past the lenders. The second part of the deal has to be done on Monday, by Greece submitting a list of proposed measures.

In football terms Greek finance minister Yanis Varoufakis has snatched an “narrow away defeat” from a potential knockout – from the cup and the league combined.

Here’s why. The draft does not give Germany everything it wanted. It allows Greece to vary its fiscal target this year – meaning it can run a lower surplus, as yet unspecified. In addition, according to Varoufakis, there is “creative ambiguity” about the surpluses Greece is required to run beyond this year.

Second it maintains the words Varoufakis proposed on Thursday: that Greece will not rollback old measures or unilateral policies “that would negatively impact fiscal targets, economic recovery or fiscal stability” – however with the addition of the words “as assessed by the institutions”. This clarifies who gets to decide whether the revised Greek programme threatens these things.

By Monday Greece has to submit a list of measures, in order to get the money to recapitalise its banks, and roll over its loans. Varoufakis spun this at a press conference as something that would be assessed jointly – so effectively the power game between Germany, Greece and everybody in between now continues, but with the IMF – whose methodologies are considerably less doctrinaire than the ECB on what Syriza proposes to do – in the loop.

In addition, the word “bridge” appears in the agreement. Dijsselbloem indicated that it would be a bridge to any future arrangement – and in that sense, the German opposition to any signal of the possibility of a transition phase was overcome.

Positives for Greece

Here’s why I think Varoufakis has achieved something. In the hours before the deal the Greek media reported deposit flight had significantly increased. So it was not the ECB threatening Greece with capital controls but the Greek central bank and finance ministry knowing they would have to limit ATM withdrawals as early as Tuesday.

With that hard deadline clear Greek negotiators feared the position they signed up to tonight would be chipped away by their opponents to nothing – i.e. towards the German position. So by signing early, they – they believe – have removed the ticking clock issue, and if the ECB – as Mr Varoufakis expects – makes positive announcements on restoring normal credit lines to the Greek banks, the banks are safe.


He said in the press conference the Banks would remain open “Tuesday, Wednesday and ad infinitum”.

A nightmare scenario for Greece was that, if they imposed ATM limits on Tuesday, the EU/IMF could then drag their feet, Cyprus style, forcing total capitulation.

The true substance of what’s been agreed will only be decided as the IMF/EU and ECB say yay or nay to each of the Greek measures. The German finance minister, and indeed the German “tone of voice” was not present at the final announcement of the deal. So it remains to be seen what the German lawmaker’s response is.

Syriza’s left

Varoufakis was visibly relieved. He has – we think – averted a bank run and total surrender, but only by beating a retreat from what Syriza promised in the aftermath of the election.

Syriza’s left will criticise this – and they will criticise the conduct of Varoufakis and his team who seemed to have very few bullets left in the clip by this evening. But because Varoufakis can sell this as “better than it could have been” I would expect there to be relief, and the anger focused on Germany, on the Greek streets this holiday weekend.

Asked what happens if the IMF/EU do not agree the list Syriza presents on Monday, Varoufakis said, disarmingly, “then we are finished”. But if it can be agreed, there is a massive amount Syriza can do on policies not tied to its fiscal limits, and four months only takes us to the end of June, which has always been “riot season” in the Greek crisis.

The strategic crisis is not over. But the damage to trust and solidarity, with one nation – Germany – being seen to attempt to force another’s electorate into total surrender – is real.

I asked Dijsselbloem in the press conference: “What do you say to the Greek people, whose democracy you’ve just trashed.” He replied that he did not think that was a very objective question. We’ll have to agree to differ.

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