News Analysis: A Deal That Preserves Greece’s Place in Eurozone, and Fiscal Restraints
Saturday, 21 Feb 2015 | 3:06 PM ET
CNBC.com
The national flag of Greece and the flag of the European Union fly above a government building on January 23, 2015 in Athens.
Just a month ago, after being propelled to power by a wave of anger at Greece’s economic miseries, Alexis Tsipras declared his Syriza party’s election victory the start of a Europe-wide revolt against austerity. “Europe is going to change,” he said before setting off on a tour of European capitals to rally support for a more relaxed new direction.
The “anti-austerity revolution” proclaimed by Syriza and its fans elsewhere, however, has now fizzled, its passions doused by the political reality that leaders in the rest of Europe do not want to join or, more important, finance the Greek-led revolt.
Greece’s hoped-for new dawn for Europe ended on a rain-drenched Friday evening in the Justus Lipsius Building, a huge, Soviet-style Brussels office block where finance ministers from the 19 countries that use the euro — known as the Eurogroup — had gathered for their third emergency meeting in two weeks.
A deal negotiated there lifted the threat of bankruptcy hanging over Greece and with it the immediate risk that it might have to leave the eurozone and the 28-member European Union, an exit that would have delivered a grave blow to Europe’s six-decade drive for integration.
But an agreement to extend Greece’s bailout for four months also committed it to honor fiscal targets and other conditions it had vowed to scrap and left intact the supervising role of the so-called troika — a trio of creditor bodies that Syriza wanted banished, viewing it as the hated symbol of their country’s subordination to so-called “neo-liberal” economic dogma. Moreover, the finance ministers made clear that Greece will not get any more cash until it satisfies them that it can keep a lid on spending, setting the stage for yet more tense negotiations in coming days and weeks.
Syriza still claimed victory but few outside the party — and some within it — saw anything other than an abrupt halt to its iconoclastic vision of a “new deal” in which voters, not markets and Brussels technocrats, decide how money flows and on what terms.
Asked at a news conference Friday whether Europe had not “trashed” Greece’s democratic will, Jeroen Dijsselbloem, the Dutch finance minister and head of the Eurogroup, pointed to a fundamental truth in an economic bloc where voters in one country cannot tell voters elsewhere how to spend their money. “It cannot be one country that says ‘Can I have support but I will formulate my own conditions?’ ” he said.
Instead of scrapping the so-called memorandum, a package of austerity and other measures that Syriza had declared “dead,” Greece, according to a statement agreed to late Friday by the Greek and other ministers, pledged to “refrain from any rollback of measures” agreed to by previous governments, or “unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions,” the new euphemism for the Troika.
Communist Tendency, a small far-left group inside Syriza, denounced the commitment as a betrayal of the working class and “submission to the blackmail of the troika.”
Finance Minister Wolfgang Schäuble of Germany, who led opposition to Syriza’s demands for a thorough rethink of Greece’s bailout terms, at a late night news conference in Brussels took a swipe at what he suggested had been the new Greek government’s dreamy illusions.
“Being in government is a date with reality, and reality is often not as nice as a dream,” said Mr. Schäuble, who has been pilloried in the Greek media as an unfeeling monster bent on deepening Greece’s economic suffering, which includes a catastrophic 25 percent contraction of the economy since 2010, along with unemployment of 26 percent over all and above 50 percent for youths.
But Friday night’s settlement did not really mark the end of a five-year-long Greek drama that is still threatening Europe’s commitment to an “ever closer union.”
The next hurdle is a Monday deadline for Greece to submit a list of all the policy measures it plans to take to satisfy creditors’ demands. And even if Greece’s plan passes muster on Monday, the whole issue of how to help Athens and on what terms will resurface when the extended bailout, worth 240 billion euros, or $273 billion, expires in June and, as many expect, Greece needs a further infusion of cash to stave off default.
“Negotiations are just beginning,” Mr. Tsipras, Greece’s new prime minister, said in a television address on Saturday that cast the previous evening’s accord as a victory for his government. “We won the battle but not the war,” he said. “The real difficulties lie ahead.”
But his political opponents and outside observers derided Syriza’s cries of victory.
“I think it is almost a total capitulation,” said Raoul Ruparel, the head of economic research at Open Europe, a research group in London. “Tsipras gambled on austerity fatigue in Europe and thought that by flying the flag for change lots of other countries would follow his lead. None did.”
Even countries like Portugal, which also suffered through grinding austerity after it signed up for a bailout with tight conditions, stood firm alongside Germany, Finland and other northern European countries. Having slashed budgets and taken other unpopular steps, incumbent governments across Europe feared that siding with Syriza would only empower like-minded insurgent political groups in their own countries.
“Let’s not kid ourselves,” a post on a website affiliated with Syriza said on Saturday. “This proposal equals, if not a U-turn towards the Memorandum, then the burial of any meaningful debt reduction and the freezing of even the most restrained measures in favor of the people that Alexis Tsipras had personally vowed to implement.”
Speaking in Brussels, Yanis Varoufakis, the Greek finance minister, dismissed talk of defeat, pointing to a vague promise of “flexibility” included in a statement issued by the Eurogroup as a sign that Athens could still rewrite the terms. He also returned to a pugnacious tone that had infuriated Berlin and many other European capitals, warning that Friday’s deal would be “dead and buried” if creditors did not accept Greece’s proposals on Monday.
Guntram Wolff, director of Bruegel, a research group in Brussels, said Syriza had severely miscalculated from the start by taking a “confrontational approach” in a button-down European Union system that embraces quiet consensus-building and shuns emotional polemics.
But its biggest mistake, Mr. Wolff said, “was to think that all of southern Europe would align behind Greece” against what Athens has consistently presented as German intransigence in defense of austerity for ideological reasons, or simply out of spite.
Syriza’s belief that Spain, Portugal and Italy would rally to its anti-austerity crusade was fed in part by the rapturous reception Mr. Tsipras and his lieutenants received from like-minded anti-establishment parties ahead of Greece’s election in January.
“A wind of change is blowing in Europe,” Pablo Iglesias, leader of Spain’s upstart Podemos party told a Syriza pre-election rally in Athens, “The name of that change in Greece is Syriza, and the name of the change in Spain will be Podemos.”
But the surging fortunes of populist parties, both left and right, across Europe only made sitting leaders more wary of Syriza and its policies, even those tired of Brussels-mandated budget cuts.
The anti-austerity cause also lost some of its momentum as the European Union began to let up on some of its previously harsh demands for cuts and the European Central Bank announced that, starting in March, it would buy up 60 billion euros worth of government bonds in an effort to spur growth.
Soon after taking power in Athens late last month, Mr. Tsipras and Mr. Varoufakis launched a tour of European capitals, impressing fashion mavens with their cool youthful attire, particularly their lack of ties, but also ruffling feathers with their sometimes impetuous comments.
As Syriza hit the road, Chancellor Angela Merkel of Germany and Mr. Schäuble quietly pressed their own case for financial discipline, looser labor laws and other change, inviting European leaders to Berlin even as Ms. Merkel took the lead in brokering an abortive truce to the conflict in eastern Ukraine.
In between trips to Brussels last Monday and again on Friday for emergency finance ministers’ meetings, Mr. Schäuble, a stern 72-year-old who has used a wheelchair since a failed assassination attempt in 1990, attended a presentation given in Berlin by the finance minister of Portugal, one of the southern European nations that Greece viewed as natural allies. Like Greece, Portugal had endured years of austerity after appealing for a financial lifeline.
But the Portuguese minister, Maria Luís Albuquerque, spoke in Berlin of very different lessons from austerity. She proudly detailed how Portugal had endured and emerged from a bailout aimed at mending her nation’s tattered finances. It was all about “regaining credibility” and sticking to rules, she said.
The next day, just a few hours before his finance minister flew to Brussels, Mr. Tsipras continued his own campaign to show that Greece was not beholden to Germany or other creditors and had friends elsewhere. He boarded a visiting Chinese warship in the Greek port of Piraeus and spoke of the “special importance” of investment from China.
CNBC.com
The national flag of Greece and the flag of the European Union fly above a government building on January 23, 2015 in Athens.
Just a month ago, after being propelled to power by a wave of anger at Greece’s economic miseries, Alexis Tsipras declared his Syriza party’s election victory the start of a Europe-wide revolt against austerity. “Europe is going to change,” he said before setting off on a tour of European capitals to rally support for a more relaxed new direction.
The “anti-austerity revolution” proclaimed by Syriza and its fans elsewhere, however, has now fizzled, its passions doused by the political reality that leaders in the rest of Europe do not want to join or, more important, finance the Greek-led revolt.
Greece’s hoped-for new dawn for Europe ended on a rain-drenched Friday evening in the Justus Lipsius Building, a huge, Soviet-style Brussels office block where finance ministers from the 19 countries that use the euro — known as the Eurogroup — had gathered for their third emergency meeting in two weeks.
A deal negotiated there lifted the threat of bankruptcy hanging over Greece and with it the immediate risk that it might have to leave the eurozone and the 28-member European Union, an exit that would have delivered a grave blow to Europe’s six-decade drive for integration.
But an agreement to extend Greece’s bailout for four months also committed it to honor fiscal targets and other conditions it had vowed to scrap and left intact the supervising role of the so-called troika — a trio of creditor bodies that Syriza wanted banished, viewing it as the hated symbol of their country’s subordination to so-called “neo-liberal” economic dogma. Moreover, the finance ministers made clear that Greece will not get any more cash until it satisfies them that it can keep a lid on spending, setting the stage for yet more tense negotiations in coming days and weeks.
Syriza still claimed victory but few outside the party — and some within it — saw anything other than an abrupt halt to its iconoclastic vision of a “new deal” in which voters, not markets and Brussels technocrats, decide how money flows and on what terms.
Asked at a news conference Friday whether Europe had not “trashed” Greece’s democratic will, Jeroen Dijsselbloem, the Dutch finance minister and head of the Eurogroup, pointed to a fundamental truth in an economic bloc where voters in one country cannot tell voters elsewhere how to spend their money. “It cannot be one country that says ‘Can I have support but I will formulate my own conditions?’ ” he said.
Instead of scrapping the so-called memorandum, a package of austerity and other measures that Syriza had declared “dead,” Greece, according to a statement agreed to late Friday by the Greek and other ministers, pledged to “refrain from any rollback of measures” agreed to by previous governments, or “unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions,” the new euphemism for the Troika.
Communist Tendency, a small far-left group inside Syriza, denounced the commitment as a betrayal of the working class and “submission to the blackmail of the troika.”
Finance Minister Wolfgang Schäuble of Germany, who led opposition to Syriza’s demands for a thorough rethink of Greece’s bailout terms, at a late night news conference in Brussels took a swipe at what he suggested had been the new Greek government’s dreamy illusions.
“Being in government is a date with reality, and reality is often not as nice as a dream,” said Mr. Schäuble, who has been pilloried in the Greek media as an unfeeling monster bent on deepening Greece’s economic suffering, which includes a catastrophic 25 percent contraction of the economy since 2010, along with unemployment of 26 percent over all and above 50 percent for youths.
But Friday night’s settlement did not really mark the end of a five-year-long Greek drama that is still threatening Europe’s commitment to an “ever closer union.”
The next hurdle is a Monday deadline for Greece to submit a list of all the policy measures it plans to take to satisfy creditors’ demands. And even if Greece’s plan passes muster on Monday, the whole issue of how to help Athens and on what terms will resurface when the extended bailout, worth 240 billion euros, or $273 billion, expires in June and, as many expect, Greece needs a further infusion of cash to stave off default.
“Negotiations are just beginning,” Mr. Tsipras, Greece’s new prime minister, said in a television address on Saturday that cast the previous evening’s accord as a victory for his government. “We won the battle but not the war,” he said. “The real difficulties lie ahead.”
But his political opponents and outside observers derided Syriza’s cries of victory.
“I think it is almost a total capitulation,” said Raoul Ruparel, the head of economic research at Open Europe, a research group in London. “Tsipras gambled on austerity fatigue in Europe and thought that by flying the flag for change lots of other countries would follow his lead. None did.”
Even countries like Portugal, which also suffered through grinding austerity after it signed up for a bailout with tight conditions, stood firm alongside Germany, Finland and other northern European countries. Having slashed budgets and taken other unpopular steps, incumbent governments across Europe feared that siding with Syriza would only empower like-minded insurgent political groups in their own countries.
“Let’s not kid ourselves,” a post on a website affiliated with Syriza said on Saturday. “This proposal equals, if not a U-turn towards the Memorandum, then the burial of any meaningful debt reduction and the freezing of even the most restrained measures in favor of the people that Alexis Tsipras had personally vowed to implement.”
Speaking in Brussels, Yanis Varoufakis, the Greek finance minister, dismissed talk of defeat, pointing to a vague promise of “flexibility” included in a statement issued by the Eurogroup as a sign that Athens could still rewrite the terms. He also returned to a pugnacious tone that had infuriated Berlin and many other European capitals, warning that Friday’s deal would be “dead and buried” if creditors did not accept Greece’s proposals on Monday.
Guntram Wolff, director of Bruegel, a research group in Brussels, said Syriza had severely miscalculated from the start by taking a “confrontational approach” in a button-down European Union system that embraces quiet consensus-building and shuns emotional polemics.
But its biggest mistake, Mr. Wolff said, “was to think that all of southern Europe would align behind Greece” against what Athens has consistently presented as German intransigence in defense of austerity for ideological reasons, or simply out of spite.
Syriza’s belief that Spain, Portugal and Italy would rally to its anti-austerity crusade was fed in part by the rapturous reception Mr. Tsipras and his lieutenants received from like-minded anti-establishment parties ahead of Greece’s election in January.
“A wind of change is blowing in Europe,” Pablo Iglesias, leader of Spain’s upstart Podemos party told a Syriza pre-election rally in Athens, “The name of that change in Greece is Syriza, and the name of the change in Spain will be Podemos.”
But the surging fortunes of populist parties, both left and right, across Europe only made sitting leaders more wary of Syriza and its policies, even those tired of Brussels-mandated budget cuts.
The anti-austerity cause also lost some of its momentum as the European Union began to let up on some of its previously harsh demands for cuts and the European Central Bank announced that, starting in March, it would buy up 60 billion euros worth of government bonds in an effort to spur growth.
Soon after taking power in Athens late last month, Mr. Tsipras and Mr. Varoufakis launched a tour of European capitals, impressing fashion mavens with their cool youthful attire, particularly their lack of ties, but also ruffling feathers with their sometimes impetuous comments.
As Syriza hit the road, Chancellor Angela Merkel of Germany and Mr. Schäuble quietly pressed their own case for financial discipline, looser labor laws and other change, inviting European leaders to Berlin even as Ms. Merkel took the lead in brokering an abortive truce to the conflict in eastern Ukraine.
In between trips to Brussels last Monday and again on Friday for emergency finance ministers’ meetings, Mr. Schäuble, a stern 72-year-old who has used a wheelchair since a failed assassination attempt in 1990, attended a presentation given in Berlin by the finance minister of Portugal, one of the southern European nations that Greece viewed as natural allies. Like Greece, Portugal had endured years of austerity after appealing for a financial lifeline.
But the Portuguese minister, Maria Luís Albuquerque, spoke in Berlin of very different lessons from austerity. She proudly detailed how Portugal had endured and emerged from a bailout aimed at mending her nation’s tattered finances. It was all about “regaining credibility” and sticking to rules, she said.
The next day, just a few hours before his finance minister flew to Brussels, Mr. Tsipras continued his own campaign to show that Greece was not beholden to Germany or other creditors and had friends elsewhere. He boarded a visiting Chinese warship in the Greek port of Piraeus and spoke of the “special importance” of investment from China.
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