The deal yesterday morning between the Greek PM and the Eurozone Finance ministers is an agreement to reform before talks. By tomorrow evening, the Greek parliament has to accept 4 pieces of legislation on a large range of issues (pensions, labour markets, taxation), after which the other 19 Eurozone countries will start negotiations on another bailout. The European Central Bank has refused any loosening of the conditions for more loans to banks, meaning that Greece will have to keep up its end of the deal whilst its banks are essentially bankrupt and the rest of the countries take their time to negotiate and decide whether they agree with the outcomes.
Any negotiated bailout will need unanimity to go ahead. So the Fins, whose government is dependent on the ‘Real Fins’ who are adamant that there will not be more money going to Greece, would have to agree. The Dutch liberal party PM, who brought a long list of broken Greek reforms to the attention of the Eurozone meeting (backed up by the Slovenians and others) would have to break an election promise not to send any more money to Greece. The German parliament, which is being inundated with stories of Greek corruption in the German press, would have to agree. The Baltic, Irish, and Portugese governments would also have to agree to more money for the Greeks, when the Greeks failed to push through the reforms that they did implement the last 6 years.
Forget it. Not gonna happen. Discussions on whether the reforms are useful or whether they would push Greece into another recession are beside the point: the outside money has dried up and Greece will have to live within its means whilst its government and its banks are bankrupt, so you should see the agreed-upon reforms as the first step of Greece outside the Eurozone. A tragedy for the population of Greece.
From an Australian perspective, you would be forgiven for being bemused at this turn of events as the Australian media and commentariat has by and large taken the perspective that the Greeks are victims. I don’t really know why the Australian media has adopted this stance because this is certainly not what the Europeans, or even the UK commentators on average think. Take the recent interview with the UK conservative William Hague who describes Varoufakis as “a demagogic and now departed finance minister who regards as “terrorism” the simple act of lending money and expecting it back one day”. Perchance the Australian media follows the perspective of the half a million ex-Greeks in Melbourne?
But if you follow the European news, you will be struck by how widespread the anti-Greek sentiment has become. Stories of broken promises, sabotaged reforms, outright corruption, tax evasion, and wilful obstructionism are daily fare. Not just in Germany, but in the whole of Northern Europe, the Baltics, and the Balkans. The Greek people have lost a lot of good-will in the last 5 years and get blamed for the actions of its politicians and economic elite. Rightly or wrongly, the sense that the Greeks have betrayed the trust of other Europeans and need to suffer for that betrayal runs deep.
The last 6 months in particular have been disastrous for the image of Greece. Varoufakis, admired here in Australia, is seen as a figure of ridicule and derision by the rest of Europe, even by many on the left-side of politics. His pronouncement that the rest of Europe was engaging in ‘terrorism’ when it put conditions on new loans, was a terrible mistake. His constant belittling of the other Eurozone partners in the media and the grand-standing on democracy and how Greece was a ‘victim’ cost the Greeks. The latest Eurotop saw the result of this: a Greek denouement that was well-prepared by both the French (who appear to have helped Greece write its latest proposals and got the Greek PM to meekly accept everything) and Northern Europeans (who ambushed the Greek PM on reforms and spending).
I read the full interview of Varoufakis once he was ex-minister. It makes painful reading. He tells of how he tried to have academic debates with the Eurozone ministers he was negotiating with. They would have none of it, but he seems to have persisted for 5 more months. He tells of how the preparations for a possible grexit went no further in Greece than a few discussions with 5 others in the ministry. He hence tried to enforce his idea of debate on the people he was begging for more money and did not seriously prepare for the eventuality that there might not be agreement. As a commentator said, Varoufakis showed up for a gun-fight with a latte! Painfully amateurish. He then proudly relates how he supplied a Greek victimhood story to his current PM in 2010 and the Syriza party since then, who bought it hook, line, and sinker. He thus dragged his PM and a whole party with him in his personal mission to reform the European establishment and mainstream economics by means of open debate. Instead of living such dreams, he should have pushed through reforms within Greece (rather than reverse the reforms of the previous government), and prepare his country for a grexit.
What happens in the coming weeks? I still think a grexit is coming and that it on balance will be better than the alternatives. Exactly how is hard to know, though I am willing to have a guess. The Greek parliament will probably accept a few new laws by Wednesday, followed by temporary easing of the Emergency Liquidity Assistance conditions on Greek Banks that will keep the banks afloat a few days. Negotiations will then start, but I think stories will quickly appear in the media of how the Greek ministries are not implementing the new laws and how the follow-up laws on the judicial system that are supposed to be approved by Wednesday next week are not what they were agreed to be. That will be enough of an excuse for several countries to veto any proposed deal, which then means the Greek banks will be visibly bankrupt, at which point the Greek government will have little option but to introduce a new currency. Varoufakis himself flags the first two moves in a grexit: the introduction of IOUs to pay the bills and direct control of the Greek central bank.
It seems the Greeks have not printed a new currency in preparation of a grexit. I hope for their sakes that the ECB has been more forward looking and has printed it for them.