Greece officially applied for a three-year loan from the European Stability Mechanism yesterday, and has until the end of today to submit a detailed reform proposal. If the proposal is approved by “the troika” of creditors (the European Central Bank, the IMF, and the European Commission), it would trigger a further meeting of European leaders over the weekend where Greece’s ultimate fate would be decided.
Mario Draghi, president of the European Central Bank, however, appeared to pour cold water on the proposal clearing that first hurdle, saying that “this time it’s really difficult.” Christine Lagarde of the IMF also sounded a note of caution, insisting that any deal will have to include debt restructuring for Greece—something that Germany and several Eastern European countries may find difficult to swallow. As for the Eastern Europeans, many just don’t trust the Greeks to follow through: “It is one thing to put a plan on the table, but implementation is something else. Why should people believe that the new [Greek] proposal will be for real?” the Latvian central bank governor said.
Leaks in the Greek press, however, indicate that the proposal is significant: real cuts to sweetheart pensions and noteworthy tax raises appear to be on the table. And the fact that the far left wing of Syriza has started protesting loudly backs the leaks up, and suggests that Greek Prime Minsiter Alexis Tsipras is facing a revolt in his party by pushing the deal through.
The deal has the support of Greece’s other parties, so it ought to pass the Greek parliament, if it comes to a vote. It’s a big if, however. If the deal is rejected by the Europeans, Tsipras will no doubt fall back on the more radical elements of his coalition, who are calling for measures such as the nationalization of banks, control of mass media, and the takeovers of major businesses. There are people in Syriza who want a forced exit from the euro; the hard left sees a serious economic crisis as an opportunity to build the kind of Venezuelan mess that communists somehow confuse with social progress.
It’s not looking good for Greece these days. More and more Europeans believe that the country simply can’t implement the kinds of changes that would make its continued presence in the eurozone possible. They could well be right. But more and more people in Greece are so angry and so desperate that genuinely radical consequences of a Grexit cannot be ruled out.
The root problem, as always, isn’t cold-hearted Germans or lazy Greeks. It is a monetary union that doesn’t fit the realities of European life, and the inability of Europe’s institutions to reform it.