Reading The Greek Deal Correctly
by James K. Galbraith on 23 February 2015
Social Europe
http://www.socialeurope.eu/2015/02/greek-deal
On Friday as news of the Brussels deal came through, Germany claimed victory and
it is no surprise that most of the working press bought the claim. They have
high authorities to quote and to rely on. Thus from London The Independent
reported:
"several analysts agreed that the results of the talks amounted to a
humiliating defeat for Greece."
No details followed, the analysts were unnamed, and their affiliations went
unstated - although further down two were quoted and both work for banks. Many
similar examples could be given, from both sides of the Atlantic.
The New Yorker is another matter. It is an independent magazine, with a high
reputation, written for a detached audience. And John Cassidy is an analytical
reporter. Readers are inclined to take him seriously and when he gets something
wrong, it matters. Cassidy’s analysis appeared under the headline, “How Greece
Got Outmaneuvered” and his lead paragraph contains this sentence:
"Greece’s new left-wing Syriza government had been telling everyone for
weeks that it wouldn’t agree to extend the bailout, and that it wanted a new
loan agreement that freed its hands, which marks the deal as a capitulation by
Syriza and a victory for Germany and the rest of the E.U. establishment."
In fact, there was never any chance for a loan agreement that would have wholly
freed Greece’s hands. Loan agreements come with conditions. The only choices
were an agreement with conditions, or no agreement and no conditions. The choice
had to be made by February 28, beyond which date ECB support for the Greek banks
would end. No agreement would have meant capital controls, or else bank
failures, debt default, and early exit from the Euro. SYRIZA was not elected to
take Greece out of Europe. Hence, in order to meet electoral commitments, the
relationship between Athens and Europe had to be “extended” in some way
acceptable to both.
But extend what, exactly? There were two phrases at play, and neither was the
vague “extend the bailout.” The phrase “extend the current programme” appeared
in troika documents, implying acceptance of the existing terms and conditions.
To the Greeks this was unacceptable, but the technically-more-correct “extend
the loan agreement” was less problematic. The final document extends the “Master
Financial Assistance Facility Agreement” which was better still. The MFFA is
“underpinned by a set of commitments” but these are - technically - distinct. In
short, the MFFA is extended but the commitments are to be reviewed.
Also there was the lovely word “arrangement” - which the Greek team spotted in a
draft communiqué offered by Eurogroup President Jeroen Dijsselbloem on Monday
afternoon and proceeded to deploy with abandon. The Friday document is a
masterpiece in this respect:
"The purpose of the extension is the successful completion of the review on
the basis of the conditions in the current arrangement, making best use of the
given flexibility which will be considered jointly with the Greek authorities
and the institutions. This extension would also bridge the time for discussions
on a possible follow-up arrangement between the Eurogroup, the institutions and
Greece. The Greek authorities will present a first list of reform measures,
based on the current arrangement, by the end of Monday February 23. The
institutions will provide a first view whether this is sufficiently
comprehensive to be a valid starting point for a successful conclusion of the
review."
If you think you can find an unwavering commitment to the exact terms and
conditions of the “current programme” in that language, good luck to you. It
isn’t there. So, no, the troika can’t come to Athens and complain about the
rehiring of cleaning ladies.
To understand the issues actually at stake between Greece and Europe, you have
to dig a little into the infamous “Memorandum of Understanding” signed by the
previous Greek governments. A first point: not everything in that paper is
unreasonable. Much merely reflects EU laws and regulations. Provisions relating
to tax administration, tax evasion, corruption, and modernization of public
administration are, broadly, good policy and supported by SYRIZA. So it was not
difficult for the new Greek government to state adherence to “seventy percent”
of the memorandum.
The remaining “thirty percent” fell mainly into three areas: fiscal targets,
fire-sale privatizations and labor-law changes. The fiscal target of a 4.5
percent “primary surplus” was a dog as everyone would admit in private. The new
government does not oppose privatizations per se; it opposes those that set up
price-gouging private monopolies and it opposes fire sales that fail to bring in
much money. Labor law reform is a more basic disagreement - but the position of
the Greek government is in line with ILO standards, and that of the “programme”
was not. These matters will now be discussed. The fiscal target is now history,
and the Greeks agreed to refrain from “unilateral” measures only for the
four-month period during which they will be seeking agreement.
Cassidy acknowledges some of this, but then minimizes it, with the comment that
the deal “seems to rule out any large-scale embrace of Keynesian stimulus
policies.” In what document does any such promise exist? There is no money in
Greece; the government is bankrupt. Large-scale Keynesian policies were never on
the table as they would necessarily imply exit - an expansionary policy in a new
currency, with all the usual dangers. Inside the Euro, investment funds have to
come from better tax collection, or from the outside, including private
investors and the European Investment Bank. Cassidy’s comment seems to have been
pulled from the air.
Another distant fantasy is the notion that the SYRIZA team was “giddy” with
political success, which had come “practically out of nowhere.” Actually SYRIZA
knew for months that if it could force an election last December, it would win.
And I was there on Sunday night, February 8, when Prime Minister Alexis Tsipras
opened Parliament with his version of the State of the Union. Tsipras doesn’t do
giddy. And Yanis Varoufakis’s first words to me on arrival at the finance
ministry just before we went over to hear him were these: “Welcome to the
poisoned chalice.”
Turning to the diplomatic exchanges, Cassidy concludes that Tsipras and
Varoufakis “overplayed their hand.” An observer on the scene would have noticed
that the Greek government remained united; initial efforts to marginalize
Varoufakis were made and rebuffed. Then as talks proceeded, European Commission
leaders Jean-Claude Juncker and Pierre Moscovici went off-reservation to be
helpful, offering a constructive draft on Monday. Other governments softened
their line. At the end-game, remarkably, it was the German government that split
- in public - with Vice Chancellor Sigmar Gabriel calling the Greek letter a
basis for negotiation after Finance Minister Wolfgang Schäuble said it wasn’t.
And that set up Chancellor Angela Merkel to make a mood-changing call to Alexis
Tsipras. Possibly the maneuver was choreographed. But still, it was Schäuble who
took a step back in the end. It seems that none of these facts caught Cassidy’s
attention.
Finally, in the run-up to these talks did the Greek side fail to realize that
they had no leverage, giving - as Cassidy writes - all the advantages to
Schauble once “he realized that Varoufakis couldn’t play the Grexit card”? In
truth the Greeks never had any intention of playing any cards, nor of bluffing,
as Varoufakis wrote in The New York Times and as I had written two days after
the election, in Social Europe:
"What leverage does Greece have? Obviously, not much; the heavy weapons are
on the other side. But there is something. Prime Minister Tsipras and his team
can present the case of reason without threats of any kind. Then the right and
moral gesture on the other side would be to … grant fiscal space and to
guarantee Greek financial stability while talks are underway. If that happens,
then proper negotiations can proceed."
That appears to be what happened. And it happened for the reason given in my
essay: in the end, Chancellor Merkel preferred not to be the leader responsible
for the fragmentation of Europe.
Alexis Tsipras stated it correctly. Greece won a battle - perhaps a skirmish -
and the war continues. But the political sea-change that SYRIZA’s victory has
sparked goes on. From a psychological standpoint, Greece has already changed;
there is a spirit and dignity in Athens that was not there six months ago. Soon
enough, new fronts will open in Spain, then perhaps Ireland, and later Portugal,
all of which have elections coming. It is not likely that the government in
Greece will collapse, or yield, in the talks ahead, and over time the scope of
maneuver gained in this first skirmish will become more clear. In a year the
political landscape of Europe may be quite different from what it appears to be
today.
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