Will the Eurozone deal save Greece?

Greece will present a reform package to its creditors today to secure a bailout extension in all but name, but will it actually achieve anything?

by Adam Gale
Last Updated: 24 Mar 2015

The Eurozone breathed a collective sigh of relief over the weekend, as the prospect of one of its founding members packing its bags and leaving seemed to be averted. Late on Friday, Greece and its creditors agreed a deal effectively extending the bailout due to expire at the end of the week, giving the country €7.2bn (£5.4bn) in debt relief so it can meet its looming repayment deadlines.

Phew. Greece won’t go bankrupt and leave the Euro, the Eurozone won’t lose its southern half to dreaded ‘contagion’, and everyone’s balance sheets will stay as healthy (or as unhealthy) as they were before Syriza was elected. Everyone can relax, at least until June, when the new agreement expires.

It’s followed a tense month. Greece’s new left-wing Syriza government threatened to suffer the consequences of non-payment as the price of dignity, played the Nazi war reparations card and even flirted with neighbourhood bad boy Russia in an effort to get its way. Europe’s mandarins were thoroughly spooked (these were unpredictable leftist radicals after all – their finance minister doesn’t even wear a tie for goodness’ sake).   

After all the ruckus, however, the extent to which it’s actually achieved anything is debatable. The most crucial line in the Eurogroup agreement, ‘the Greek authorities reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and timely’, sounds suspiciously like it was drafted by a German hawk, rather than a Greek dove.

The country’s €240bn debt has not been restructured or reduced, and it still has to submit to the discipline of its creditors without the prospect of ‘unilateral’ action. Greece must present its reforms to the Eurogroup for approval today, if the deal is to be approved and ratified by the other 18 states. On the surface, it seems like a clear victory for Germany.

What has Syriza actually achieved?

The most obvious victory for Greece, and everyone else, is time. For four months, at least, Greece will not go bankrupt, in theory giving Syriza time to revive its necrotic economy. How far it will be able to do that depends very much on today’s list of reforms.

Greek minister of state Nikos Pappas said over the weekend they will include measures to make the bureaucracy more effective and combat tax evasion, which sounds good but is hardly a concession from the Eurogroup.

Whether more concrete measures like the promised hike in the minimum wage or tax relief will be among the reforms will depend on how much flexibility the Eurogroup is willing to concede on the issue of austerity. The Eurogroup statement said only that it would ‘take the economic circumstances of 2015 into account’ when considering Greece’s hated budget surplus targets.

Greece may or may not then have scored a concession on austerity, and at best it’s only postponed the crisis until June. At least Syriza scored a victory on the semantic front, however. Prime minister Alexis Tsipras promised his people he’d rid them of the hated ‘Troika’ of the IMF, ECB and Eurozone, and he has succeeded. The country’s creditors now collectively go by the far less sinister ‘the institutions’. Consolation prize, anyone?

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today