A week of high-stakes negotiations over the fate of the eurozone has culminated in the complete capitulation of Greece to its creditors, chief among them Germany. According to Open Europe’s summary of the preliminary agreement released late Friday, Greece has agreed to continue under the current bailout terms, remain under the supervision of the IMF, and allow Europe to retain control of its bank funds. Furthermore:
No unilateral action – According to the statement, “The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.”
In light of this, a large number of promises that SYRIZA made in its election campaign will now be hard to fulfil. In the press conference given by Eurogroup Chairman Jeroen Dijsselbloem and EU Economics Commissioner Pierre Moscovici, it was suggested that this pledge also applied to the measures which were announced by Greek Prime Minister Alexis Tsipras in his speech to the Greek parliament earlier this week – when he announced plans to roll back some labour market reforms passed by the previous Greek government.
Four months rather than six months – Greece requested a six-month extension, but the Eurogroup only agreed to four months. This is a crucial point: it means the extension expires at the end of June. As the graph below shows, Greece faces two crucial bond repayments to the ECB in July and August which total €6.7bn. This is a very tough hard deadline. There is limited time for the longer term negotiations which will take place – provided that a final agreement on the extension is reached. It is very likely we will be back in a similar situation at the end of June.
All told, the Greeks barely even won a fig leaf in this negotiation. The sole concessions granted them were the inclusion of the word “bridge” and the promise to revisit the primary surplus requirements, which Greece would almost certainly not be able to make anyway.In the end, Athens probably would have been better off accepting the German demand for a “three-sentence letter”, however high-handedly phrased (and it was: they referred to the Greek counter-proposal as a “Trojan horse”). (Earlier today a strange report emerged, presaging the big capitulation, that Greece had apparently sent the wrong reply to the Europeans, and had meant to capitulate last night.)Where does Europe go from here? Germany, which Walter Russell Mead recently ranked second among the world’s most significant powers, continues to set the agenda for the Continent. The flip side of this is that Berlin will have to show some leadership now that the immediate crisis is resolved, as the long-term problems with the euro have not gone away. If it doesn’t, Germany’s standing in the world will ultimately be diminished, despite its almost-total victory today.And what about Greek democracy? Syriza was elected, as PM Tsirpas and Foreign Minister Varoufoukis repeatedly pointed out, on a mandate to overturn the conditions they just accepted. The coalition’s approval rating was as high as the 70s earlier this week, and all other mainstream parties have been discredited by the events of the past few years. If Syriza loses the confidence of the people, will the Greeks turn to the neo-Nazi Golden Dawn party—or other true radicals?Yet the Greeks themselves put Tsirpas and Varofoukis in this position. They voted one way with their ballots and another way with their bank accounts, and the imminent crisis the bank run created (however sensible on an individual level such decisions were) made Greece’s position in international negotiations untenable.Many European leaders are quite skilled at kicking the can down the road. But the terms of this particular temporary solution—as well as the number of crucial elections this year—might make that harder to do this time. We’ve said before that the last round of negotiations turned the euro crisis from a short-term market crisis to a long-term political crisis. Even after today, that’s nowhere near resolved.