David Attewell on the Greek Deal: The Bad, The Good, and the Weird

(now that the substance of the Greek deal is known, I’ve brought back David Attewell to sort through the tea leaves for us)

Facing the potential exit of Greece from the Eurozone, the Troika and the Syriza-led government agreed something of a ceasefire on Monday. For the next four months, the Greek government will continue to receive financial support (mostly to pay back its Northern creditors), and its banks will continue to receive liquidity support from the ECB. But the real action is in the substantive terms of the bridge program. What kind of settlement has Greece gotten, and how will this impact European politics going forward?

For Stathis Kouvelakis of Syriza’s Left, the deal is an abject failure for the government. For Sony Kapoor, and Jamie Galbraith, it was a climb-down for Germany. For Krugman, “Greece did o.k.”

So who’s right?

I’d argue that it was a modest win for Syriza, which presents the new governments with some important room for maneuver, but also under serious threat going forward.

Let’s start with the bad. Syriza lost entirely on the issue of surveillance, which I think was expected. The Troika is unchanged, and is still holding the whip hand over Greece, evaluating the progress and content of reforms before each tranche of financial assistance is disbursed – no Troika approval, no money. This might have been a bargaining chip, but the optics in terms of Greek sovereignty are of symbolic importance to the Left (which as we’ll see, might become an issue very quickly).

On a macro level, the Greek government gave up on its demand for debt forgiveness. We are not seeing a reset in the way this problem is being approached; the fiction that the Greek debt is serviceable lives on. Turning to substantive policy, the Troika took a substantial bite out of Syriza’s Thessaloniki program, with the government sustaining tough blows on labor market reforms, collective bargaining, and the minimum wage (which will be increased only gradually, and in consultation with the Troika). But the bitterest pill to swallow will be on privatizations, where the government- in direct contradiction to its program- has agreed not to roll back any privatizations or prevent those in progress from being completed. This concession has already stoked severe tensions with Syriza’s Left (led by the Energy Minister Lafazanis), and the possibility of losing its razor-thin majority clearly has the government nervous going forward.

On the other hand, Greece has won something important of substance from the Troika: it will be allowed to propose its own policies to meet the Troika’s broad objectives, rather than follow the previous memorandum’s prescriptions. This will mean a focus on fighting corruption and tax evasion to generate revenue, rather than regressive cuts and tax increases. The government will also be allowed to reduce its annual repayments (although we don’t know by how much), and will be permitted to carry out poverty relief measures, including restrictions on foreclosure and eviction for primary residences, restoration of access to electricity for poor families, and a major food stamp program.

An important principle has been re-established: elections matter. Creditor countries no longer have the right to fully dictate the policy of indebted countries. These measures clearly would never have seen the light of day had the government not faced down the Eurogroup. If Syriza can hold together, that fact alone should allow the government to cement its support in the coming months. It will need it for the next showdown when the bridge agreement expires in four months. The question in the meantime is whether the government will succeed where the establishment parties willfully failed, in tackling corruption and tax evasion. Making some progress on this front will be popular across the political spectrum, but the government will have to face down some very scary people.

A few other notes of interest on Greece and the broader European scene:

• A subtle, but fascinating split emerged in the German Grand Coalition. On Monday, Finance Minister Wolfgang Schäuble, who leads the pro-Grexit wing of the CDU/CSU, rejected the Greek request outright. But Sigmar Gabriel, leader of the Social Democrats and Economy Minister in the Grand Coalition), immediately contradicted him, saying that the request was a starting point for negotiation. Ultimately, Angela Merkel reined Schäuble in, and went over his head in direct talks with Tsipras. The Bundestag is expected to ratify the bailout on Tuesday despite defections on the Right.

• Sticking with Germany for a second, Sigmar Gabriel made an intriguing speech the other day calling for the end of the ‘downward spiral of austerity’. While that’s rather grandiose, there was some substance: a call for the EU’s deficit limits (currently at 3% of GDP) to be increased and for investment targets to be made legally binding. This is still weak and incoherent, but it speaks to the very crucial struggles of beleaguered social democrats to grope their way towards a different economic strategy. The open question going forward is whether they’re going to react to the rise of populist parties by reclaiming the centre-left ground they’ve abandoned or whether they’re going to stick with the grand coalition and exclude the populist left as a bunch of crazies.

• Ever since the IMF’s chief economist made a big mea culpa in 2013 about the counter-productiveness of the austerity measures, there has been an increasing consensus that the IMF is positioning itself as a dovish, more Keynesian counterweight within the Troika. That may have been a bit overstated. Christine Lagarde reacted to the deal reached on Tuesday with skepticism. Her pointed letter emphasized that the IMF required Greece to fully comply with the labour market liberalization and privatization measures, which not only are crazy in the current context of deflation and ~25% unemployment, but are also the most likely to break up the government.

• At the same time that the Greek drama has been playing out, there has also been an ongoing saga related to France’s budget deficit: since the crisis, the country has been running a deficit above the 3% target called for by EU treaties, but has continually been given extensions rather than sanctions because of the rather large fascist, Marine Le Pen, looming in the country’s rearview mirror. The country has just been given a further two-year extension, which places the deadline rather perplexingly just before the 2017 presidential election. Which the Front National will have an absolute field day over.