Greece’s new socialist government appears to have given up on its demands for debt relief without spending controls, at least for the time being.
The crisis at hand was averted by an eleventh-hour deal reached with plenty of hard feelings on all sides, as The Wall Street Journal relates:
Greece struck a tenuous agreement for a four-month extension of its bailout Friday, removing immediate concerns over a potential exit from Europe’s currency union but setting the stage for more tense negotiations over the country’s financial future.
The deal, reached after weeks of often harsh exchanges between Athens and other European capitals, forced the left-wing government of Prime Minister Alexis Tsipras to temper many of the anti-austerity pledges that swept it into power last month.
The tough negotiations have frayed relationships between Greece and other governments, and particularly with Wolfgang Schäuble, the German finance minister.
“Now we hope that trust can grow again. There’s a lot of room for growth,” Mr Schäuble said afterward.
Naturally, Tsipras and his ministers are already trying to back away from the concessions they made, lest their domestic constituency revolt at the new government’s inability to deliver on its big spending promises. “Our pre-electoral program was about four years. This deal is about four months,” said Finance Minister Yanis Varoufakis.
That’s the kind of talk that could make the European Union nervous again, but for the time being, both European and American stocks surged on the news of the Greek crisis being averted, or at least punted down the field a bit. A run on Greek banks also appears to have been avoided. Greece’s previous loan agreement was only a week away from running out.
The sense of relief sweeping the markets might not last long because the Greek government only has until Monday to come up with a financial plan acceptable to the “troika” of the European Commission, the European Central Bank and the International Monetary Fund. “Troika” is not a word said with a smile in Greece these days. The Eurozone is going to want exactly the kind of budget cuts Tsipras got elected by promising to end. Bailout money amounting to 7.2 billion euros hinge on the Greek Prime Minister eating his words. As things stand, the troika gave him only a modest technical concession on spending to show for weeks of belligerent demands that Europe wave off hundreds of billions in Greek debt, relax all their spending restraints, and loan them even more money to boot.
Frayed nerves have been set aside for pledges of mutual cooperation, now that a temporary agreement has been reached. The BBC quotes Dutch Finance Minister Jeroen Dijsselbloem praising the debt extension as “a very positive outcome” and “a first step in the process of rebuilding trust.” Let’s hope he still feels that way after Greece presents its reform plan on Monday. If not, the EU can look forward to managing another debt crisis and possible Greek exit from the euro in June.