Friday, February 20, 2015

The Friday Greece-Germany agreement

The Greek negotiations with Germany will likely go in waves for the next few months.

The form of the negotiations involves EU governments and institutions. But in the current state of the eurozone, Angela Merkel's Germany is clearly calling the shots. So here I refer to Germany as shorthand for the multifaceted group of parties supporting Germany's austerity policies that are led by Merkel.

It appears to me that the compromise agreement that Germany made with Greece on Friday is an important milestone. Angela Merkel has not faced this kind of active resistance from other eurozone governments since the economic crisis began in Europe in 2008.

The agreement as it's being reported is that Germany has consented to extend the "bailout" payments to Greece for another four months. To be clear, the main purpose of those payments is to make payments on debt so that Germany and other eurozone countries and the ECB won't face imminent default on their Greek debt holdings.

Greece will submit a detailed list of reforms next week to which it pledges to abide during the four months' extension.

The four months will give Greece time to negotiate a debt haircut or other arrangements having an equivalent effect. The key issue to get their national primary surplus - income less expenses before debt service - available to use for domestic economic stimulus. The primary surplus is current running around 1.5% of GDP and the agreements Merkel imposed on Greece via the Troika would require that primary surplus to rise to 4.5%, all of which would be used to support debt service.

Friday's agreement appears to give the breathing room that Paul Krugman today said that was urgently needed. He writes in Europe Needs To Stop the Clock 02/20/2015:

I’ve been in correspondence with various people trying to track the current Greece/euro crisis, and everyone seems to have reached the same conclusion I’ve reached — namely, that what’s needed above all right now is some way to stop the clock, call a time-out, whatever. We’re talking about weeks, maybe a month or two — but that pause is desperately needed, because otherwise it will be all too easy to stumble into a preventable disaster. ...

Now, maybe after 60 or 90 days it would become clear that there is no possible deal, and Grexit {Greece leaving the eurozone} it is. But we don’t know that.

What we do know is that what appears to be the demand of hardliners — that the new Greek government agree in the next few days to abandon everything it campaigned on, that it lock in draconian fiscal targets, privatization, and other things it hasn’t had time to assess — is impossible. I don’t know whether the hard-liners believe that this bum’s rush will work, or are just pushing Greece out the door. But this is not how it should go. Everyone needs some time to think.
We'll have to see what happens next week in the discussion of the "reforms."

But I think Greece showed something very important already. Merkel put on a heavy push with an deadline set for Friday essentially by German ultimatum. But in the end, Greece got a substantive concession, the extension of the "bailout" program. And Germany got its demands that Greece stick with "reforms" only in a vague way, details to be determined later.

But there are "reforms" and there are reforms. Some on the standard list are things that the priests and priestesses of austerity actually care about: anti-labor legislation; lower wages, salaries and pensions; cutting back public services, privatizing them and selling off public property; deregulation of businesses and banks. Others are on the standard list but are things which the free-market zealots don't actually care about: fighting corruption and more efficient tax collection.

But those last two are real reforms that any democratic government can and should care about. Alexis Tsipras' government can concentrate for the next four months, and hopefully long thereafter. While the "reforms" can, uh, take lower priority.

More details of the negotiations will come to light in time. The most significant things at the moment seems to me to be the fact that, facing with the actual possibility of a rapid disintegration of the euro currency over the following two weeks, Merkel caved. She agreed - at least in principle - to the time-buying extension of aid without getting the neoliberal "reforms" signed in blood.

In further posts, Waiting for Eurogodot and Delphic Demarche, both from today, Krugman discussed the Greek situation further. in the latter, he explains that on balance this looks to him like a time-buying measure that is good for Greece:

Greece seemingly gave a lot of ground on the language: the stuff about fiscal adjustment in line with the November 2012 Eurogroup is back in, which Germany will presumably claim represents a commitment to stay with the 4.5 percent primary surplus target. But Greece apparently is claiming that the agreement offers new flexibility, which means that it will assert that it has agreed to no such thing.

So we’re in a weird place: this looks like a defeat for Greece, but since nothing substantive was resolved, it’s only a defeat if the Greeks accept it as one; which means that nothing at all is clearly resolved. And that’s arguably a good outcome — time for Greece to get its act together. [my emphasis]
John Psarapoulos, who in the past has been sympathetic toward the neoliberal reforms forced onto Greece, has a generally similar take (Greeks reach compromise with Eurogroup The New Athenian 02/21/2015):

Greece’s newly installed leftwing government is declaring a new era for national sovereignty, the economy and relations with Europe.

"Today Greece has turned a page," a triumphant government statement declared. "Negotiations could have happened all these years. Greece is neither isolated, nor is it sailing for the rocks, nor is it continuing with memoranda [of austerity]."

The Greeks staved off new austerity terms and won time to renegotiate the existing ones. Crucially, they get to discuss the debt repayment schedule, which Greece cannot meet.

But they didn’t get a reprieve with no strings attached. The Germans ultimately forced them to pick up the reform programme where the previous government left off. Which means they still have to meet certain austerity and reform targets.
Though again, I'm guessing at this point that the austerity part will take a low priority for the Greek government.

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