Published in Business Spectator (Melbourne), 26 February 2015
It was more than a little bizarre when news broke on early Saturday morning that Greece and the eurozone had reached an agreement in their dispute over the country’s debt and bailout program. What was so strange about the deal was the fact that it was announced much earlier than anyone had anticipated. And that it sounded like good news.
Unfortunately, what it meant was that the so-called deal was no deal at all but a rotten compromise. Instead of agreeing on a solution to the Greek problem, one way or the other, last week’s deal has only prolonged Europe’s agony by another four months.
The Germans call such vacuous deals “faule Kompromisse” (rotten compromises). However, in this case the Greek Finance Minister Yanis Varoufakis found an even better description of the agreement. He spoke of ‘constructive ambiguity’. That’s precisely what it is because what was agreed leaves room for interpretation without creating any long-term certainty.
Though the details of the Eurogroup’s statement are, as usual, complicated and phrased in the language of high diplomacy (read it for yourself if you like) they can be summarised briefly: The basic bailout program, which has been in place since May 2010, will continue for another four months. That’s it.
Over the next four months, the new radical left Greek government has to prove to the troika (or “the institutions”, as the combination of IMF, EU and ECB is now referred to) that it will continue precisely those policies agreed by its conservative predecessor.
If that sounds like a total surrender by the Tsipras government then, well, because it is.
Tsipras and Varoufakis have not managed to get any of their substantial demands through. There was no debt relief, no rollback of austerity, no ending of international supervision of Greece’s policies (unless you think that renaming the troika counts).
The Germans, meanwhile, have managed to get all their demands through. They can feel like the big winners of the past month, not least because they also succeeded in being supported by every other eurozone member except Greece.
Whether it was poorer Eastern European countries, debt-ridden Mediterranean countries or the healthier central European economies: In the end they all sided with Berlin for various reasons. They did not want to set a precedent for their domestic populists, could not afford write-offs for Greece or did not want to explain a debt relief for Greece to their taxpayers. Or indeed all of the above.
So Greece lost and Germany won this game of chicken? Not quite. Well, at least Greece did not blink. It was rather beaten into submission by the threat of imminent bankruptcy. But has all of this actually changed anything? Hardly. Has it saved Greece or the eurozone? Not at all.
What is going to happen next is not just an extension of the bailout program but also an extension of the fundamental uncertainty hanging over the country. Greece must now present proposals to the Eurogroup for further economic reforms and then implement them. It has to see whether it can balance its books despite the recent collapse in tax revenues. It needs to simultaneously manage to somehow boost economic growth in order to have a chance of long-term recovery, while ideally providing political stability.
It is obvious that none of this will be easily achievable and so over the next four months, we will just see a continuation of the haggling that we have witnessed over the past four weeks. But even if we manage to get through this period without a Grexit, we still do not know what is going to happen next. Since Greece will need to repay substantial amounts of debt in July and August, it would need to reach yet another bailout agreement with the eurozone by then.
Varoufakis’ summary of “constructive ambiguity” therefore nails it. It invites everyone to speculate about Greece’s long-term future without giving any hints as to what it might look like. The decision on Greece has been postponed once again. Arguably, this process will drag on for as long as Greece remains part of the eurozone because that is the fundamental flaw.
Let’s put it this way: Greece will be in need of ongoing support for however long it keeps the euro as its currency. This means that the bailout renegotiations we have just witnessed will over time become some sort of folkloristic ritual to be performed every few months. In a way, they already feel like that.
We got a taste of the haggling to come earlier this week when Greece was supposed to have delivered its list of proposed reforms to Brussels on Monday. The Germans once again complained that the first drafts were not good enough. Then Greece declared it could not meet the agreed deadline, before in the end the papers were submitted to the Eurogroup’s complete satisfaction at 11.15pm Brussels time on Monday. This will now be followed more consultations, more meetings, more negotiations and parliamentary debates in those countries underwriting the deal.
In all likelihood, we are looking at a long, protracted process of constant negotiations and renegotiations with Athens. The alternative is, of course, that Greece finally exits the eurozone – either of its own accord or because it is kicked out (or because it accidentally goes bankrupt).
But let’s be clear about this: There is not an ounce of a chance that Greece will miraculously turn into a prosperous, fast-growing, solvent, productive economy while it remains on eurozone life support and continues to have the euro as its currency.
Alan Kohler recently wrote that Greece should leave the eurozone ASAP. He is absolutely right, and indeed it should have left ages ago. Instead, we have just witnessed another prolongation of Greek misery, this time by a nominal four months.
Europe is well past the stage at which it needs constructive ambiguity. It needs actions. It needs decisions. And it needs them now, not in four months’ time. Please, can we finally see the last act in this Greek drama?
