By Thursday, when the government of Greece had to put its final offer on the table to avoid bankruptcy, the government capitulated to its creditors. In Greece, defiance dissipates into capitulation.
But even this was not good enough for Greece’s creditors, they demanded even more. Germany doesn’t want to save Greece. It seems to want to humiliate Greece.
The Sunday deadline for a deal was extended into early Monday morning, and Greece accepted an aspirational deal that requires its parliament to accept harsh constraints this week before its European union creditors will consider extending a bailout package. This is not a completed deal. The New York Times reports, European Leaders Reach Deal on Greek Debt Crisis:
Greece agreed to a deal with its European creditors on Monday after long and bitter negotiations, swallowing substantial new concessions in the face of imminent financial collapse and insistent demands from Germany and other countries that it prove it was worthy of a third bailout in five years.
The agreement, announced after a contentious all-night session among leaders of the 19 nations that use the European common currency, requires Greece to move quickly to adopt a host of economic policy changes and to allow close monitoring by Europe and the International Monetary Fund.
If Prime Minister Alexis Tsipras can push the central elements of the package through his Parliament in the coming days — a political challenge likely to prove difficult — the creditors said they would be willing to open negotiations on providing as much as 86 billion euros, or $96 billion, to keep Greece afloat for the next three years, and to consider proposals to ease repayment terms on much of Greece’s existing debt of more than €300 billion.
The creditors also agreed, once terms of the bailout are settled, to pull together a short-term stimulus program of up to €30 billion to help Greece’s ravaged economy.
To Germany and other nations that went into the negotiations fed up with Greece’s inability to get its financial act together, the outcome was fair and the new requirements necessary to assure that the Athens government lives up to its commitments. But to some Greeks, and to critics of the German-led policy of imposing deep budget austerity as a condition for aid, the deal amounted to an unwarranted violation of Greece’s sovereignty.
Either way, it appeared to remove the immediate threat of Greece’s financial crisis escalating to the point that the country might be forced to abandon the euro as its currency. By Monday afternoon, the European Central Bank had signaled that it would leave its credit line to Greece’s banks in place at its current level, leaving the banks, which have been closed for two weeks, in severe distress but likely to muddle through until a bailout deal can be finalized.
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As part of Greece’s commitments, Ms. Merkel said, a fund will be created to take control of assets owned by the Greek government, with the idea of selling them to help pay down the country’s debt and finance investment programs within Greece. That fund would be “to the tune of” €50 billion, she said, a figure that seemed ambitious given the slow pace of previous privatization efforts.
Greece will also be required to seek assistance from the International Monetary Fund and to agree to let the organization continue to monitor the country’s adherence to its bailout commitments. The Greek government had resisted a continued role for the I.M.F., seeing the fund’s involvement as unwanted meddling.
The Greek Parliament will also be required to approve the terms of the agreement “without delay,” according to the document released on Monday morning. The agreement requires passage of many of the changes by Wednesday and others by next week.
The agreement will call for Greece to raise taxes in some cases, pare pension benefits and take various other measures meant to reduce what critics see as too much bureaucracy and too many market protections that keep the Greek economy from operating efficiently.
The agreement specifies that Greece must address a broad array of issues long pushed by the creditors, from requiring the government to produce more reliable economic statistics to overhauling the regulations for businesses including pharmacies, bakeries and ferries and changing the rules for labor unions and strikes.
A bleary-eyed Mr. Tsipras, speaking to reporters here on Monday, tried to put a positive spin on what might be seen as an almost total capitulation by Athens to creditors’ demands for tough austerity. He said that the threat of Greece being forced out of the eurozone had been avoided and a promise of debt relief and growth funds had been secured.
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But any easing of Greece’s debt repayment obligations would not include something Greece had previously made a condition of any deal: a so-called haircut, or reduction of the overall debt, which is more than €300 billion. The document issued on Monday made its resistance to that demand clear in one sentence: “The Euro Summit stresses that nominal haircuts on the debt cannot be overtaken.”
Matt O’Brien at the Washington Post’s Wonkblog wrote over the weekend, How Greece went from victory to economy-destroying defeat:
Greece thought it had leverage when it had none, and, as a result, it crippled its economy even more than it already was for nothing.
That’s the simple story after Greece offered to meet almost all of Europe’s demands in its latest bailout bid. The key word there being “demands.” Greece thought it could negotiate with Europe when it was really being told what to do, but now knows it has no choice but to comply if it wants to stay in the euro zone—which it does.
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The bottom line, though, is that the referendum didn’t give Greece more bargaining power, like the government said it would, and and now Athens will have to do as much austerity as before, and possibly more.
This isn’t even a Pyrrhic victory for Greece. It’s a Pyrrhic defeat.
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Syriza’s strategy, insofar as there was one, couldn’t have been much more of a failure. Its brinkmanship has created so much uncertainty that Greece’s economy has started to shrink again, which will only get worse now that the banks are closed. That last part is the economic equivalent of a heart attack: businesses can’t get the credit they need to, well, stay in business, and so have no choice but to lay people off. And what has Syriza gotten for all this? Nothing, and maybe less than that. Not only is Greece going to have to accept austerity on Europe’s terms, but it also might have to do more than it would have before to make up for the fact that its economy is in worse shape now.
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The only thing that’s changed is Greece is worse off than before. Indeed, it’s hard to see how Greece will grow now that it’s just promised to do more austerity every year and is stuck in a currency that’s too expensive for it. The real mistake was to bluff about leaving the euro when neither Syriza nor the Greek people wanted or were willing to do it. That’s left their economy in a slightly bigger hole, with maybe more austerity, and no way out.
Paul Krugman of the New York Times writes today, Killing the European Project:
Suppose you consider Tsipras an incompetent twerp. Suppose you dearly want to see Syriza out of power. Suppose, even, that you welcome the prospect of pushing those annoying Greeks out of the euro.
Even if all of that is true, this Eurogroup list of demands is madness. The trending hashtag ThisIsACoup is exactly right. This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.
Can anything pull Europe back from the brink? Word is that Mario Draghi is trying to reintroduce some sanity, that Hollande is finally showing a bit of the pushback against German morality-play economics that he so signally failed to supply in the past. But much of the damage has already been done. Who will ever trust Germany’s good intentions after this?
In a way, the economics have almost become secondary. But still, let’s be clear: what we’ve learned these past couple of weeks is that being a member of the eurozone means that the creditors can destroy your economy if you step out of line. This has no bearing at all on the underlying economics of austerity. It’s as true as ever that imposing harsh austerity without debt relief is a doomed policy no matter how willing the country is to accept suffering. And this in turn means that even a complete Greek capitulation would be a dead end.
Can Greece pull off a successful exit? Will Germany try to block a recovery? (Sorry, but that’s the kind of thing we must now ask.)
The European project — a project I have always praised and supported — has just been dealt a terrible, perhaps fatal blow. And whatever you think of Syriza, or Greece, it wasn’t the Greeks who did it.
This may be the first time in history that the banks have forced a sovereign country into what here in the states would be a Chapter 11 bankruptcy with the debtor in possession, but subject to oversight from the bankruptcy trustee, in this case the IMF, and supervision from the court, in this case the creditor banks themselves, not an impartial judge. The banks can now dictate to a sovereign nation what public policies it shall enact, to the benefit of the banks. This is a dangerous precedent.