13 Jul 2015

Greece wins euro debt deal – but democracy is the loser

After an all-night negotiation during which Greek prime minister was subjected, according to one observer, to “mental waterboarding”, there is the basis of a deal to keep Greece in the euro. As I write, the Greek side do not have a document, but we have some details.

Greece will have to implement the tough austerity measures demanded by its lenders, plus hand €50bn of assets to a privatisation fund, where sales will be used to pay down debt.

In return it will get a new, third bailout deal reportedly worth €54bn; a promise of discussions on restructuring its debt; and a bridging loan to finance the repayments it cannot make. It is this – plus the imminent reopening of the banks under an ECB emergency lending scheme – that will allow PM Alexis Tsipras to save any kind of face with his own supporters, who are fuming.

If you doubt how it might play on the Greek streets, consider the headline of Dimokratia, a conservative tabloid: “Greece in Auschwitz: Schauble attempts eurozone holocaust”.

Last night the eurozone leaders presented Greece with an ultimatum that shredded all vestiges of control the government has over the economy going forward, and reversed every law it has put through parliament since being elected with 36 per cent of the vote in January.

While Greeks vented, and the hashtag #ThisIsACoup went viral across the globe, Tsipras and his team negotiated. They knew that to have any chance of getting the deal through parliament they must free themselves of IMF involvement, resist the foreign-held privatisation fund, get some commitment to debt reprofiling and an assurance that the ECB will turn the taps of emergency lending back on to the banks.

I said last night that without these things there was no chance of getting the austerity measures through parliament. It seems this morning that each of the measures has been fudged: so the privatisation fund remains in Athens, not Luxembourg; the IMF invovement is still there but apparently muted; the debt restructuring is there but unspecified.

So I am still not certain this will pass.

To understand what happens next you have to understand that, first, the Greek centre and conservative right is so morally and organisationally shattered by its defeats in the January election and the June referendum that it cannot simply take over.

There is only a parliamentary majority if Tsipras (pictured below) leads it.

Greece's PM Tsipras and Greek Finance Minister Tsakalotos leave a euro zone leaders summit in Brussels, Belgium


The rebels in his party come in two genres: the hard left of the Left Platform, whose leader Panayotis Lafazanis abstained in Saturday’s parliamentary vote and may be sidelined in the coming days; and a more organic left, known informally as the 53 group, whose MPs voted yes on Saturday but can go no further.

The Syriza newspaper Avgi spelled out the party’s approach going into the negotiations: they must accept and vote through the outcome of negotiations in order to stay in power, because the overthrow of a government by the EU is unacceptable (nor indeed possible given the parliamentary arithmetic).

The eurozone took itself to the brink last night, and we will only know for certain later whether its reputation and cohesion can survive this.

The big powers of Europe demonstrated an appetite to change the micro-laws of a smaller country: its bakery regulations, the funding of its state TV service, what can be privatised and how. Whether inside or outside the euro, many small countries and regions will draw long-term negative lessons from this. And from the apparently cavalier throwing of a last-minute Grexit option into the mix by Germany, in defiance of half the government’s own MPs.

It would be logical now for every country in the EU to make contingency plans against getting the same treatment – either over fiscal policy or any of the other issues where Brussels and Frankfurt enjoy sovereignty.

Parallels abound with other historic debacles: Munich (1938), where peace was won by sacrificing the Czechs; or Versailles (1919), where the creditors got their money, only to create the conditions for the collapse of German democracy 10 years later, and their own diplomatic unity long before that.

But the debacles of yesteryear were different. They were committed by statesmen. People who knew what they wanted and miscalculated. It was hard to see last night what the rulers of Europe wanted.

What they’ve arguably got is a global reputational disaster: the crushing of a left-wing government elected on a landslide, the flouting of a 61 per cent referendum result. The EU – a project founded to avoid conflict and deliver social justice – found itself transformed into the conveyor of relentless financial logic and nothing else.

Ordinary people don’t know enough about the financial logic to understand why this was always likely to happen: bonds, haircuts and currency mechanisms are distant concepts. Democracy is not. Everybody on earth with a smartphone understands what happened to democracy last night.

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