GREECE CUTS A DEAL

It has been a roller-coaster few weeks for the Greek public – optimism, fear, despair, anger and finally relief - as a rather provisional and fragile deal has been struck between the new SYRIZA Greek government and the Eurogroup. The negotiation has been divisive, wholly lacking in the much-vaunted communautaire spirit and may yet unravel; the Greeks have been given at best a 4-month reprieve and in the current parlance, “the can has been kicked down the road”. A new arrangement will need to be put in place by 30 June 2015, no doubt revisiting much old ground – not an exciting prospect!

Varoufakis plays his weak hand well

The Greeks have had a desperately weak hand to play. 5 years of austerity have shattered the ever-tenuous economy. Help from the EU, ECB and IMF has allowed the French and German banks greatly to reduce their exposure but given little to Greece itself, now burdened with new debts she has scant chance of repaying. The new government, only in office since 25 January, was plunged into discussions with the Eurogroup and it asked for ambitious changes, debt write-downs, new bond substitution and the end of the austerity programme in the name of “humanitarian” relief. They came away with only minor changes. Write-downs were totally rejected, bond discussions are deferred and when the European finance ministers were asked to consider Greek “humanitarian” aid it is said they fell about laughing – shameful if true. The Greeks were allowed to retain VAT at the existing rate, to run a primary fiscal surplus of 1 ½% rather than 3% and to redraft an unpopular property tax. Otherwise they have to stay within the previous EU (failed) programme and must present their own programme for the approval of the Eurogroup within 3 days. The implicit Greek threat of leaving the Eurozone was not emphasised, as SYRIZA had promised the electorate Greece would remain inside.

Yanis Varoufakis, the Greek finance minister, is a highly energetic, persuasive and intellectually gifted academic economist. He has charisma, charm and an enviable command of Greek and English. Like many Greeks he probably talks too much and his method is direct. His inexperienced delegation leaked documents and briefed against opponents.  During heated discussions, he called Jeroen Dijsselbloem, head of Eurogroup, “a liar” and apparently the two statesmen squared up for fisticuffs but the weedy Dijsselbloem thought better of it! Varoufakis has a very prickly relationship with German finance minister Wolfgang Schaeuble (but who would not?) and he is by no means a typical finance minister, with his informal attire, maverick notions and forceful manner.

At Brussels, Greece was beset by enemies. Her fellow PIGS (Portugal, Ireland and Spain) reckoned Greece should swallow austerity as they had and not get some better deal. Another Northern group, which I christen the FANGS (Finland, Austria, Netherlands, Germany and Slovakia), all within the German orbit, took their lead from Schaeuble and injected their poison by deriding Greek promises and trying to humiliate Greece at every turn. 

Tactless Wolfgang Schaeuble

Wolfgang Schaeuble is no doubt a doughty and locally popular fighter for the German economy. A tax inspector by training, Schaeuble has a rigid world-view seeing his world as governed by its own immutable rules, demanding obedience. As the BBC pointed out, Schaeuble takes a puritanical view of amassing debt. In German, Debt translates as Schuld which also means Guilt, implying moral turpitude. He is a fervid Hellenophobe and enemy of the Left – so SYRIZA is a double nightmare to him. His problem is, as Adenauer said of his finance minister Erhard, that he is no politician. He does not have the subtlety to finesse a situation, to compromise or to settle for less than 100%. He must dominate and micromanage other countries’ economies. He easily earns Germany the hatred of his weaker victims and one day he will come unstuck when a stronger opponent stands up to him.

Greece did have some allies. Surprisingly, the Commission was helpful: notably Jean-Claude Juncker and Pierre Moscovici, both of whom smoothed the jagged path between Greece and the Northerners. Michel Sapin of France and Matteo Renzi of Italy showed at least some Mediterranean solidarity. While Schaeuble, egged on by his ministry’s advisory committee, claimed indifference to the potential exit of Greece from the Eurozone, the political decision was taken, after a meeting between Angela Merkel and Francois Hollande to keep Greece afloat.

Many pseudo-classical allusions have been made during this crisis: Schaeuble described the original Greek submission as “A Trojan Horse”, newspapers warned Greece against accepting a punitive “Carthaginian Peace” and I would trot out the old favourite “The Achilles Heel” of the Eurogroup position is that they had bigger fish to fry with civil war in the Ukraine and ISIS expanding its influence into nearby Libya.

Schaeuble and Varoufakis will spin the outcome of this negotiation to suit their respective electorates. Whatever, I hope the new Greek government can demonstrate a better level of competence than its predecessor. Already it has published proposed new laws to stimulate tax collection (a perennial Greek problem) involving up to 100 instalments and big discounts for immediate capital payments. I guess taxes will flow in strongly, helping to reverse the recent serious capital flight. The government also promises a crackdown on tax evasion and corruption in high places, a large-scale Greek activity, to which New Democracy and PASOK shamefully pandered for fear of upsetting the powerful local oligarchs’ networks and compromising their own friends. Progress on this issue is vital and maybe only SYRIZA can deliver it. 

Assuming the new deal actually flies (we will know by Wednesday 25 February) Greece may look a better place after 4 months of vigorous rule and better able to arrange a sustainable deal within the euro. Alternatively, and what I think is more sensible, politicians could arrange a “friendly” Grexit, as ex-President Giscard d’Estaing advocates, with an IMF plan allowing Greece to devalue and rebuild, thus regaining her nationhood and independence.

Finally, let the UK thank her lucky stars she is not in the Eurozone. Can you imagine making common economic cause with 19 disparate nations or having to go cap-in-hand to Mr Schaeuble?

SMD

22.02.15.

Text Copyright © Sidney Donald 2015.