MacroPolis

Last Tuesday’s bitty Eurogroup and its inconclusive outcome have provided room for numerous interpretations about who emerged strengthened, or victorious even, from the 11-hour discussion and its conclusions. Perhaps, though, we are wasting our time in trying to work out who got the upper hand.

Firstly, because throughout the course of the Greek crisis the task of finding whose goals have been met at the Eurogroup has been pretty simple: look no further than German Finance Minister Wolfgang Schaeuble. Even when it appeared that things were running away from him, Schaeuble, through a mix of smart diplomacy, iron will and the benefit of representing the eurozone’s economic powerhouse and paymaster, always managed to engineer an outcome with which he could be content.

Just 24 hours before Tuesday’s meeting in Brussels, the International Monetary Fund issued a new debt sustainability analysis to, again, draw attention to its belief that the Greek programme cannot work as it is designed now and that immediate and unconditional debt relief would be needed. Officials from the Washington-based organisation have repeated this message continuously over the last few weeks but Schaeuble, like a high street shopper ignoring the human billboards in his path, never let his attention stray.

His brief was to get a deal on Greece done now, before the British referendum, Spanish elections and a possible resurgence of the refugee crisis, while ensuring that the IMF does not cut its ties to the Greek programme and that the issue of debt relief is kicked down the road far enough so that it does not become a controversial topic in Germany ahead of next year’s elections.

The Eurogroup statement ticked all of these boxes: Greece will get its funding (after jumping threw a few more hoops), the IMF will not walk away from the bailout, at least for now, and there will be only minor interventions on the debt front before the programme concludes in the summer of 2018.

It is true that some doubts remain about whether the IMF will join the programme by the end of the year with new funds. Its European director, Poul Thomsen, was very keen to point out after the Eurogroup that a number of issues, including what plans the eurozone has for Greek debt relief from 2018 onwards, have to be resolved before the fund can make a final decision.

However, the loose agreement is enough to buy everyone a few months at least and, in Greek crisis terms, that is a lifetime. Never during the course of the bailout programmes has the eurozone chosen to take a decisive approach that has the potential to change the dynamic when the option of fudging things and not ruffling any feathers has been on the table.

Maybe what we should be asking about the outcome of the Eurogroup is who stands to lose most, rather than who came out on top. If this is the question, then perhaps we have to accept that Alexis Tsipras came away with the wooden spoon.

It is possible that Tsipras will never have a better chance to secure significant, game-changing debt relief for Greece than he did over the last few days. For starters, his government had just passed a package of legislation that any administration in Europe would have balked at: 3 percent of GDP in fiscal measures, the setting up of a new privatisation fund, the sale of non-performing loans and the creation of a contingency mechanism to name a few. While implementation will always remain a concern, by passing these measures and gaining almost full support from his MPs for them, Tsipras suggested to Greece’s lenders that he is willing to comply.

At the same time, the IMF made a more urgent case than it ever had before for Greece to receive upfront and sizeable debt relief, partly because of the negative impact that last year’s prolonged negotiations had on the trajectory of the country’s debt. Given that IMF participation is a prerequisite for Schaeuble and his government, this gave Greece an opportunity to ally with the fund and attempt to leverage its position – an opportunity that Athens spurned, in the most emphatic way.

Similarly, the fact that the first review of the third Greek bailout had dragged on to within touching distance of the Brexit vote and other potential tumultuous developments in Europe provided Athens with another advantage in the negotiations. Under normal circumstances, the pressure would have been entirely on the Greek government to sew up a deal before it ran out of cash during the course of June. This time, though, those sitting on the other side of the table also had an interest in bringing the negotiations to a close before Greek coffers emptied out.

Perhaps, though, the biggest factor in making the conditions for debt relief worse for Greece is the shifting pattern of European politics. If Schaeuble’s plan to push any serious discussion about restructuring measures to 2018 is successful, what guarantee does Greece have that in two years the eurozone will be willing to look favourably on the idea?

For starters, the German elections next year may lead to a substantial shift in support from the country’s two main parties, including Schaeuble’s CDU, creating an environment in which it will be even more difficult for Germany’s leaders to admit to MPs and voters that the country will have to suffer losses on the loans it made to Greece. An INSA poll for Bild newspaper this week indicated that support for Angela Merkel's grand coalition with the SPD has dropped below 50 percent for the first time.

Also, as the recent Austrian presidential elections have underlined, the rise of nationalism and populism is becoming a serious challenge for mainstream politics in Europe. By the time Greece is due to exit its third programme at the end of July 2018, the political balance in the eurozone may have shifted.Aapart from the federal elections in Germany, France will also have held a presidential vote and the Netherlands are due to have general elections, while there are doubts about what the political situation will be like in several other eurozone member states, such as Finland and Spain. Athens could be facing a series of governments that – either as a result of a change in administration or because of the prevailing political wind in their countries – will have little appetite to discuss the kind of debt relief measures that have been proposed by the IMF.

This means Tsipras may be embarking on a two-year journey of implementing a challenging adjustment programme, which calls for a primary surplus of 3.5 percent of GDP in 2018 and is full of measures that have enraged the Greek electorate, with only an extremely flimsy promise of debt relief at the end of it as his paddle. Right now it doesn’t really sound like a winning formula.

*An earlier version of this article appeared in last week's e-newsletter, which is available to subscribers. More information about subscriptions is available here.

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