German Finance minister Schauble speaking on 'Strong Euro - strong Europe', 2013. Demotix/ Goncalo Silva. All rights reserved.The European Council agreement on Greece is an exercise in economic sadism and political coup d’état. But its economic and political consequences – for Athens and Berlin - are more complex than may at first appear.
“They crucified him there”. Alexis Tsipras has suffered “an extensive mental waterboarding” – the torture favoured by the Americans - in the marathon of the European Council ended on the morning of Monday July 13. This is how officials described the situation inside the longest EU summit, which ended with a document imposing harsh conditions on Greece for a new programme of financial "aid" from the EU and the IMF. Let us have a closer look.
The text of the agreement is an exercise in political coup d’état, the rhetoric shaped in such a way as to tie the hands and feet of Greece to the table of torture - VAT increase, pension reform, automatic spending cuts when budget balances are not the ones desired by Brussels. The hollowing out of sovereignty is explicit - every decision of the government in Athens must first be approved by troika officials before being discussed in Parliament. Then there are the ridiculous requirements - the Code of Civil Procedure has to be introduced in three days and the Sunday opening of shops and liberalization of bakeries and dairies are required as a solution to the Greek crisis.
The economic meaning of the agreement, however, has to be sought beyond its tone. Austerity will be very harsh, aggravating the country’s recession. The agreement cannot solve the Greek crisis and cannot function in its own procedures. It includes the liberalization of labour markets and a privatization expected to bring an enormous €50 billion, to be used to fund Greek banks, repay debt and for new investment. The definition and timing of actions, however, may leave some room for maneuver.
Most important, in the agreement there are four innovations absent in previous drafts that appeared on the negotiating table:
- The most urgent one is the return of liquidity to Greek banks which, however, will remain closed for another week, due to the inability of Mario Draghi to confront Berlin’s hard line.
- The second one is the amount of funding that will come from the European Stability Mechanism - between €82 and €86 billion - a much larger amount than in the past.
- The third one is the recognition that Greek debt is unsustainable and an opening to the granting of grace periods and other measures.
- Finally, in the very last paragraph, there are €35 billion of European funds for investments to rebuild the economy.
Four novelties that allow the Greek economy to avoid collapse and keep its European struggle open. Moreover, its political meaning is even more complex and uncertain. First, the agreement signaled the defeat of the hard line German Finance Minister Schauble, who wanted to evict Greece from the euro. His resignation should now be a goal for all those who care about the survival of Europe.
There was a fissure in relations between Berlin and Paris, with Hollande taking back a modest, more moderate role. Even Italy’s low profile Matteo Renzi said "enough is enough" - and has benefited by an immediate fall in spreads on Italian bonds. Within Social Democrats in Germany and in the European Parliament demands for moderation were visible. And there is now a loss of credibility of German leadership, and a growing anti-German sentiment among the élite in the United States and among moderate commentators in Britain. Criticism is growing even within Germany; Heiner Flassbeck, former undersecretary of finance in Berlin, wrote in his blog that:
“This day will be remembered as the day in which a narrow-minded and stubborn German policy was imposed on Europe in a manner which provoked so much resistance among the people in Europe and the world, that from this time onwards Europe is no more than a chimera - a vision of cooperation among peoples living together, which was suffocated by a restrictive German policy”.
For Athens, the agreement comes with a high price for the victory of the "no" in the referendum of Sunday July 5, revealing how European construction is now incompatible with the practice of democracy. It has created a split within Syriza, threatening the government of Alexis Tsipras, who may gain approval of the agreement with a majority by losing part of his party and gaining the support of centrists. There is serious risk of resignation or new elections, with the Nazis of Golden Dawn waiting in the sidelines.
But Alexis Tsipras has unexpected resources – we have seen that with the referendum - and still has two cards to play. The first one is that Europe needs Tsipras to pass the agreement in Parliament, where there is a no majority without the bulk of Syriza votes. The political conditions do not allow a return to a government of technocrats, as has happened in the past. The second factor is that Tsipras has used the agreement to buy time, hoping for a possible victory of Podemos in Spain that would change the balance of power in Brussels.
Was there another option for Tsipras? The alternative, as told by Yanis Varoufakis in an interview with the New Statesman was a more confrontational Greece reacting to the closing of Greek banks by Mario Draghi with the issuing of liquidity either in euros or in IOUs, cutting the debt held by the ECB, taking control of the Bank of Greece. A road that would have likely led to an exit from the euro. The Tsipras government decided not to take this road – which remains a possibility, given the unviable path imposed by the Brussels agreement - and Varoufakis resigned. In the meantime, Greece continues to function, in the hottest summer of recent history.