So, the latest round of the Greek debt crisis has ended in a typical European combination of delay and compromise, much as Yanis Varoufakis predicted a week ago. But in view of the obvious incompatibility of the positions put forward, someone must have given a fair bit of ground. The Greeks wanted continued EU support, and an end to the Troika’s austerity program. The Troika (at least as represented by German Finance Minister Schauble) wanted Syriza to abandon its election program and continue with the existing ND/Pasok policy of capitulation to the Troika.
Put that way, I think it’s clear that the Troika blinked. The new agreement allows Syriza to replace the Troika’s austerity program with a set of reforms of its choice, focusing on things like tax evasion. Most of Syriza’s election platform remains intact. Of course, it’s only for four months, and none of the big issues has been resolved. But four months takes us most of the way to the next Spanish election campaign, hardly an opportune time to contemplate expelling a debtor country from the eurozone with utterly unpredictable consequences.
If the negotations were a win for Greece (feel free to disagree!) how did it happen?
First, it seems clear (and contrary to claims made in the last thread on Greece) that the Syriza leaders were prepared to take the risk of being thrown out of the eurozone rather than renege on their election platform. This makes obvious political sense and is consistent with their past statements, but seems to have taken the Troika side by surprise.
On the other side of the table, Schauble (at least in his public statements) was ready to push Greece out, a policy that would also have necessitated active measures to destroy the Greek economy, since nothing could be worse from the Troika viewpoint than a successful repudiation and exit from the euro.
(Uninformed speculation begins here) But I suspect Schauble did not get the backing he wanted from the IMF and ECB.
The IMF has already retracted its support for the bogus “expansionary austerity” hypothesis, but it still pushes microeconomic “reform”, so they had no logical reason to oppose the Greek offer, merely the difficulties of an entrenched position.
The ECB has also gone a long way towards abandoning the discredited assumptions on which it was founded, pursued with vigor by the unlamented Trichet. The biggest step, taken just before the Greek negotiations was the move to massive quantitative easing, an admission of the failure of all previous policies. More importantly, though, the ECB would have had to do most of the dirty work for Schauble, at the same time risking the destruction of the currency it was set up to manage.
That’s all pretty speculative, but the combination of ECB QE and the Greek extension means that the tide may have turned against austerity. The big question now is how all this will play out in Spain and Italy.