By John Cassidy
To the surprise of nobody except a few alarmists, the finance ministers of the European Union reached a deal with Greece on Friday, extending the country’s existing bailout until the early summer. 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.
Strictly speaking, though, the game isn’t over. The deal reached in Brussels is just an interim agreement, which will keep Greece solvent and its banks afloat while a broader agreement is negotiated on the country’s huge debts. Yanis Varoufakis, the Greek finance minister, has put forward some interesting ideas about how to proceed—for example, issuing new types of bonds to replace the old ones—but whatever bargaining leverage he had appears to have been undermined.
In the past few days, according to reports from Athens, ordinary Greeks have been withdrawing cash from the nation’s banks at a rate of about five hundred million euros a day. With the E.U. bailout program due to expire in a week, the Syriza government was facing the prospect of a wholesale financial collapse if the European Central Bank didn’t agree to supply the Greek banking system with more money. But the E.C.B. was telling Greece that it needed to agree to the terms laid down by Brussels and Berlin. Ultimately, this prompted Varoufakis and his boss, Alexis Tsipras, the Greek Prime Minister, to back down and agree to an extension of the bailout.
Going forward, Syriza’s policies will continue to be supervised by the hated “troika” (the European Central Bank, the European Union, and the International Monetary Fund), which many Greeks hold responsible for the dire state of their country. Moreover, the Greek government has agreed to push ahead with a series of new structural reforms, some of which it will have to detail this weekend. If the troika isn’t satisfied with what Greece offers, it could still withhold some of the money that the country needs.
In addition to all of this, Varoufakis appears to have promised not to dismantle some of the troika-imposed measures that he and Tsipras had campaigned against in the run-up to the election, such as privatizing publicly owned enterprises. The text of the new agreement says: “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 exchange for these U-turns, the Greek government did gain some concessions, including a relaxation of the fiscal targets that it has to meet. Under the terms of the bailout agreed to in 2012, Greece was supposed to generate a primary surplus of 4.5 per cent of G.D.P. (The primary surplus refers to tax revenues minus spending, not including interest payments on the national debt.) The official statement about the new agreement didn’t specify a target for this year. “Greek authorities have also committed to ensure the appropriate primary fiscal surpluses … in line with the November 2012 Eurogroup statement,” it read, but added, “The institutions will, for the 2015 primary surplus target, take the economic circumstances in 2015 into account.”
That suggests some flexibility. Varoufakis has been saying his government will aim to produce a surplus of 1.5 per cent of G.D.P. Since tax revenues have collapsed over the past couple of months, this is still an ambitious target, and it seems to rule out any large-scale embrace of Keynesian stimulus policies. But any relaxation of the existing austerity policies would be welcome to Greeks—and, after the agreement was reached, that is what Greek officials were saying they’d achieved. “Greece today has turned a page,” one official told Reuters. “We have avoided recessionary measures.”
That’s not just spin. Syriza did get something significant out of the agreement, but nothing like what it was hoping for when it took power, on January 25th. Then, there was talk of liberating not just Greece but the entire continent from the grip of austerity policies. After Friday’s deal was announced, some Greek journalists warned that Varoufakis and Tsipras would have a tough time selling the deal to the party’s radical elements, which have been out on the streets protesting the perfidy of Germany, Brussels, and the E.C.B.
In retrospect, it is clear that Tsipras and Varoufakis overplayed their hand. Their early bluster riled up the Germans and alienated other players that they needed to win over, such as the E.C.B. and the European Commission. Since Varoufakis is an academic game theorist, this is a bit surprising, but perhaps not entirely so. Having been swept into office practically out of nowhere, Syriza’s leaders were understandably giddy, and understandably eager to meet the demands of the popular protest movement that was responsible for their rise.
Tsipras and Varoufakis had economic logic on their side, too. Austerity policies have proved disastrous for the country at large. Greece’s gross domestic product has fallen by about a quarter since 2009, and the unemployment rate stands at nearly twenty-five per cent. Austerity hasn’t even succeeded in reducing the country’s debt burden. Because G.D.P. has fallen so far, its debt-to-G.D.P. ratio has continued to rise, and now stands at about a hundred and seventy-five per cent.
In some other parts of Europe, there is considerable sympathy for the Greeks’ plight, and for their argument that austerity has proved counterproductive. But the fact is that Tsipras and Varoufakis didn’t have much leverage, and they should have recognized that earlier. From the start, there was only one threat they could have made that would have put a fright into Germany and other core countries: that Greece, if it didn’t get the deal it wanted, would default on its debts, leave the euro zone, and go back to printing its own currency. But a majority of the Greek people, despite all they’ve been through, want to keep the euro, and, throughout the election campaign, Syriza said that it had no intention of leaving the currency zone. From an economic perspective, this was arguably a self-destructive policy—the Greek economy is in such bad shape that it might have done better to follow the example of Argentina, which, in 2002, defaulted on its debts and said to heck with the I.M.F.—but promising to keep the euro was one of the prices that Syriza paid for being taken seriously as a political force.
Once Wolfgang Schäuble, the flinty German finance minister, realized that Varoufakis couldn’t play the Grexit card, he knew that he had him where he wanted him. The German government point-blank refused even to consider a Greek request for an end to the bailout and a new bridging loan, and it quietly encouraged the E.C.B. to issue a series of warnings to the Greeks. And then, a couple of days ago, after Varoufakis had reversed course and asked for an extension of the current bailout, Schäuble rejected that request, too, forcing the Greeks to make even more concessions.
Even after the deal was done, Schäuble seemingly couldn’t resist taking a jab at Varoufakis and his colleagues. According to the Guardian’s invaluable live blog, he remarked: “The Greeks certainly will have a difficult time to explain the deal to their voters.” Varoufakis, in his comments, was more reserved. “This is not a moment for jubilation,” he said. “This agreement is a small step in the right direction.”