A pause in uncertainty but for how long?

Agora Contributor: Nick Malkoutzis

Is Friday’s agreement at the Eurogroup a good deal for Greece? In some respects it is but in more respects it is not. Above all, the four-month agreement leaves Greece walking an economic and political tightrope over the next four months without knowing what lies at the end of it.

But let’s start with the positives. For the first time since the Greek bailouts began in May 2010, the government in Athens will be able to define its own reform programme rather than simply be given a check list of things it needs to do by the troika. Of course these reforms will have to be fiscally sound and SYRIZA will have to shelve some of its pre-election pledges but in terms of symbolism it is refreshing for a Greek government to be responsible for designing its own policy programme.

Another significant concession obtained by Finance Minister Yanis Varoufakis is that Greece’s primary surplus target for this year (3 percent of GDP) will be adjusted downwards in agreement with the Eurogroup. This also applies to next year, when the target has been set at 4.5 percent of GDP, and the years after that. It is clear to anyone who has been following Greece and knows of the myriad challenges facing the Greek economy that it is virtually impossible to achieve the levels of growth that would secure such large primary surpluses. A lowering of the targets provides the new government with the “fiscal space” it desire to ease the pressure on the economy and launch some of its social programmes aimed at tackling the impact of the crisis, which has been woefully overlooked by previous governments and their eurozone partners.

Beyond that, the agreement keeps Greece trapped in a very restrictive framework. It will have to make progress in a whole range of reforms to keep its lenders happy over the next few months at the same time as there will be scepticism within the government about the heavy involvement of the European institutions and the International Monetary Fund, known as the troika until now. This excruciating process of proposal, deliberation, implementation and then review is something that previous governments became familiar with but will be a completely new and testing experience for the current coalition.

Most importantly, though, there is no pledge from the Eurogroup to release any of the 7.2 billion euros in outstanding loans until a review has been completed. Eurozone finance ministers decided that this should be by the end of April. The problem for Greece is that this leaves the government extremely short of money in the meantime. Cash reserves are already running extremely low, tax revenues were 1 billion euros short in January following the recent political uncertainty and there is a repayment to make to the IMF in March.

This means there will be immense pressure on Varoufakis over the next few weeks to ensure Greece can meet its financial commitments.

At the same time, possibly as much as 20 billion euros has been withdrawn from Greek banks since December, leaving the financial sector particularly vulnerable. In this environment, any impasse with lenders over the next few months could prove fatal for the new Greek government and the country. If they manage to negotiate this obstacle course by the end of June, there is the question of what the next step will be.

Will the Eurogroup at that point agree to some form of debt relief? Will Greece need further loans? Will the eurozone demand more terms? Will these be politically or economic feasible? Friday’s agreement buys a little time but the uncertainty will only build up over the next few months.

Follow Nick: @NickMalkoutzis

3 Comment(s)

  • Posted by: Dean Plassaras

    An agreement to agree at a later date is not an agreement.

    Here is the big picture: Poland to rise, Germany to decline during the next 10 years.

    Greece has absolutely no reason to cut deals with the eventual loser:

    https://www.stratfor.com/video/preview-decade-forecast-2015-2025

  • Posted by: Dean Plassaras

    No it is not a good deal.

  • Posted by: H.Trickler

    >"Is Friday’s agreement at the Eurogroup a good deal for Greece?"

    First of all, from a neutral standpoint of a Swiss it is a full capitulation of the Greek government embellished by a few nice words. In case you do not believe me, read what Manolis Glezos has said....

    Regarding to the questions at the end of the text:

    >"Will the Eurogroup at that point agree to some form of debt relief?"

    Maybe, but as every competent observer knows it is not at all the sum of debt and it's eventual relief that has any influence of the Greek live in the next few years!

    >" Will Greece need further loans?"
    In principle yes, but the real question is: Money from whom at what costs!

    >"Will the eurozone demand more terms?"

    It will not be a question about the quantity of terms, but about the decidedness of the new government to become independent, and this is only possible either with deep reforms that the population obviously refuses, or a lower living standard which imho is how it all will end.

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