Greek Bailout: Everybody Capitulated to Everyone Else

The seemingly final deadline for serious Greek proposals in the debt showdown was Friday morning, and some paperwork was indeed delivered on schedule, inducing some optimism that a Greek exit from the Euro would be averted. Depending on whom you ask, the deal is either a stunning triumph or disastrous capitulation for either Greece or its creditors.

The European Commission sounds content that it is at least a serious proposal, although the early round of huzzahs seem to be missing the subtle nuances of what Eurogroup president Jeroen Dijsselbloem said in response. The BBC quotes him calling the Greek proposal “a thorough piece of text,” but it requires support from the Greek parliament to gain “credibility.” And “even then, we need to consider carefully whether the proposal is good and if the numbers add up. We have to make a major decision. Whichever way.”

That sounds like rather qualified praise, with several ways the whole thing could go south. But at least it was not the sort of nonstarter proposal that would have ushered in Euro-geddon. French President Francois Hollande called the proposal “serious and credible,” praising the Greeks for showing “their determination to remain in the Eurozone.” That seems to have been the widely desired outcome, especially as both Greece and its creditors got a good close-up look at what the Grexit would be like.

Naturally, reaction from Germany is of great interest, and so far, the official word has been muted. Evidently, there is skepticism among Chancellor Angela Merkel’s political alliance over whether the Greek proposal is truly serious and whether Greek Prime Minister Alexis Tsipras and his Syriza party can deliver on the promises they’re making. As Kathimerini reports:

“How believable is it that this reform list will be implemented?” said Ralph Brinkhaus, deputy parliamentary floor leader for Merkel’s conservatives.

Hans-Peter Friedrich, a former minister under Merkel and a senior figure in the Bavarian Christian Social Union (CSU), told Deutschlandfunk radio: “Either the Greek government is tricking its own people or (it is tricking) us again.”

According to sources close to Merkel, she remains determined to clinch a deal with Greece and avert a so-called “Grexit” which could badly tarnish Europe’s image and her own legacy.

But cognizant of the deep scepticism in her conservative ranks and worried that Tsipras may not deliver on his promises, she has signalled that she will not do a deal at any price.

At a government news conference on Friday, her spokesman Steffen Seibert was guarded about the new Greek reform plans, declining to comment on them in detail, and making clear that Merkel could only go to the Bundestag lower house of parliament with a third bailout package for Athens if she was convinced Greece was serious about reforms.

Some analysts say agreeing to Greece’s proposal, or making a counteroffer that accepts its most important provisions, would be capitulation by Merkel and the rest of the EU. They would be effectively accepting the idea that not only will Greece never be able to repay its debts—is it quaint to ask whether that constitutes theft from those who loaned Greece so much money?—but it will never even be solvent. They will always need more money, and they’ll get plenty of it—almost $60 billion more to tide them over until 2018.

There are concessions to “austerity” as well, but they are more oriented toward reducing the amount of European money Greece needs to gobble up in order to keep rolling, not a serious effort to make them solvent. Among the measures cited by the BBC are a tax increase on shipping companies, a unified 23 percent VAT tax, phasing out solidarity grants for pensioners by 2019, $332 million in defense cuts by 2016, privatization of ports and sell-off of remaining shares in Greek telecom giant OTE, and scrapping a 30 percent tax break for the wealthiest islands.

Some think it is Tsipras and Syriza who are losing the showdown, not the EU. Arguments have been made that Greece’s new proposals are actually more stringent than the austerity measures rejected in last week’s referendum, which probably won’t sit well with Greek voters if they see it that way.

On the other hand, the UK Telegraph portrays this deal as Germany “bowing to huge global pressure for debt relief,” describing the core concession that Greece will never be solvent as giving Tsipras “a prize to take back to the Greek people after they voted by 61 percent to 39 percent to reject austerity demands in a landslide referendum last weekend.”

“While he would still have to deliver on tough reforms and breach key red lines, a debt restructuring of sufficient scale would probably be enough to clinch a deal, and allow him to return to Athens as a conquering hero,” the Telegraph predicts.

It will take a bit longer than this weekend to judge who gets to claim “conquering hero” status. Merkel at least seems to resist what she described as a “classic haircut” strategy—in other words, the outright looting of Greece’s creditors, who would be told they had to immediately kiss some large portion of their Greek receivables goodbye.

The problem is that if Greece comes out of this encounter believing the worst consequences for intransigence have been taken off the table—if they conclude the Eurozone blinked harder and deeper at the moment of crisis—it’ll be open season for other debtor nations to pull the same stunts and perhaps for Greece to try re-re-re-renegotiating its deal again later.

The best argument “anti-austerity” crusaders have ever been able to muster is that cutting off deficit spending weakens dependent economies so much that they can never earn their way back to solvency. In essence, austerity is viewed as discipline so harsh that it breaks the subject, to the detriment of lenders, borrowers, and citizens in the long run.

If Greece’s creditors are now going to accept the premise that it will never come anywhere near getting out of debt, or even getting to the point where it doesn’t need regular bailouts to survive, that case against austerity becomes more difficult to make. Also, while everyone seems to think this would be a bad moment to send Greece out of the Euro cold turkey, does anyone have an idea of what a better future moment might be?


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