The frantic search of the Greek government – pressed at home by an accelerating bank run which culminated last Friday with €1 billion withdrawals in a few hours – to achieve an agreement with its Eurozone partners ended up in an almost total retreat of Athens in front of its creditors. The Greek minister of Finance, Yanis Varoufakis barely managed to convince his 18 peers in the Eurogroup to change the name of the ‘Troika’ auditors (EU, ECB, IMF) into ‘three institutions’ and rename the ‘austerity program’ into ‘new agreement’. This was depicted in a Statement on Greece unanimously issued last Friday by the euro area ministers of Finance. This is the first document which states that, “The Eurogroup… and the new Greek authorities reached common ground”.
A play of words
However for the new arrangement between Athens and Brussels to get a final go ahead, the Greek government has to submit today Monday by the end of business, a long list of actions to be realized within the next four months. Actually what Greece got last Friday is a four-month extension of its current program, a step which mainly provides the country’s four systemic lenders liquidity financing from the European Central Bank. And this, only if the ‘three institutions’ approve this Athens’ list of actions. The approval will be conceded only if those actions are deemed adequate to achieve certain targets.
The real issues
When it came to the real issue – that is more soft loans and otherwise financial support to the government – Varoufakis undertook the obligation to “resume immediately the work that would allow the successful conclusion of the review”. He also accepted that “The Greek authorities reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and timely”. ‘The successful conclusion of the ‘review’ means that Greece is obliged to fulfill all the terms and conditions (mainly fiscal austerity and reforms) included in the second ‘Memorandum of Understanding’ agreed in 2012 between the country and the Troika of auditors/creditors, comprising the European Commission, the European Central Bank and the International Monetary Fund.
Now let’s explain the word ‘almost’ used in the introduction of this article. The second MoU expired on 31/12/2014 but in view of the imminent election of 25 January the conclusion of the sixth and final review to terminate the program was deferred. Actually the MoU was technically extended by the Eurogroup for two months up to 28 February. After that date Greece is out in the cold. This means primarily that the country’s systemic banks couldn’t count on ECB for their liquidity. As a result, the increased uncertainty about Greece’s position in or out of the euro area, the possible infamous Grexit, provoked a hemorrhage of bank deposits and capital outflow from the country.
Give and take
Given that, during the past three weeks the government of Prime Minister Alexis Tsipras was under pressure to request an extension of the MoU program, if the country was to avoid insolvency. Politically however, it was impossible for the new administration to request a continuation of a program (MoU) it had been exorcising for two years and a half in order to win the January election. At the same time though a bankruptcy and a Grexit was equally out of question, because the Greeks were exhaustively reassured by all governments present and previous, that the euro area participation was unequivocally guaranteed. Consequently, Tsipras and Varoufakis had to try and get the most they could from last Friday’s Eurogroup floundering between hell and high water. On the one side they were testing the resistance of their creditors while securing the position of Greece in the Eurozone on the other. What they really got will be apparent during the forthcoming months.
And here comes the almost; from what has been made public the duo accepted to accomplish the sixth review of the MoU, promised to fully and timely repay all loans and sign until April a new program called ‘agreement’. In return they got a relaxation of austerity of unspecified size. This mitigation of hardships will be accomplished through a reduction of the absurdly high surpluses of state budgets stipulated by the still in force MoU. Tsipras and Varoufakis also pledged to engage in a real battle against corruption, tax evasion and avoidance and trim down the government bureaucracy. It must be mentioned that all the Greek governments of the last thirty years have been promising that.
In any case Tsipras and Varoufakis got something that Germany and more precisely the German Federal minister for Finance tried to block until the very last-minute. Even hours before last Friday’s Eurogroup meeting Wolfgang Schäuble stated that what Greece had to offer was ‘a Trojan Horse’, dismissing from beforehand Varoufakis’ proposals. Surprisingly though during the afternoon he remained alone defending this position. How this happened is rather difficult to explain. According to Brussels sources Germany’s objections had succumbed to the solid common position of the three ‘institutions’, favouring Greece’s stay in euro area.
As a matter of fact by Friday night it became apparent that the European Commission, the ECB and the IMF, the three institutions which finance, audit and trail Greece for the last four years didn’t want to further jeopardize the country’s position in the euro area. They must have made it plain that Schäuble should stop playing with fire. Reportedly, even the German Chancellor Angela Merkel joined the trio in trying to stop the Federal Minister of Finance from pressing harder and harder. Schäuble was seen by some people as waging a personal war against his flamboyant Greek counterpart Varoufakis.
The President of the Commission, Jean-Claude Juncker, the competent Commissioner Pierre Moscovici and the IMF Managing Director Christine Lagarde by Friday afternoon had made it clear that they would do whatever it takes to keep Greece in the Eurozone. Mario Draghi, the President of ECB was also present in the Eurogroup location trying to reconcile the German and the Greek. Some members of ECB’s Governing Council also had made it clear that kicking Greece of Eurozone would release an Armageddon. The Americans loudly and the Chinese taciturnly joined the club demanding a swift solution of the deadlock. This newspaper has repeatedly predicted that a Grexit is near the unthinkable.
As things stand now Greece’s position in the euro area is not at stake but the question remains; at what cost to the Greek people?