Last-minute negotiations between the Greek Finance Minister, Yanis Varoufakis, and the finance ministers of the eurozone in Brussels reached a provisional agreement, which will enable Greece to access an additional €7.2 billion ($10.5 billion) in further loans from the European Union. In exchange for this, Greece has agreed to maintain the current austerity program for a further six months.
Without the agreement, Greece would have defaulted on its debts, leading to a run on the banks, and the collapse of the country’s banking system.
The deal represented a partial back-down by Greece, which has promised to end the EU-imposed austerity program which has caused Greece’s GDP to shrink by more than 20 per cent in the past five years, causing 25 per cent unemployment (and over 50 per cent among youth), cuts to public services and privatisation of government assets.
The eurozone ministers gave Greece some leeway, by offering to let the new left-wing Syriza government renegotiate some of the austerity measures in line with the policy platform of Syriza, whose name is an acronym for Coalition of the Radical Left.
The actual wording of the agreement was ambiguous.
It said: “The purpose of the requested six-month extension of the Agreement’s duration is to agree [on] mutually acceptable financial and administrative terms, the implementation of which, in collaboration with the institutions, will stabilise Greece’s fiscal position, attain appropriate primary fiscal surpluses, guarantee debt sustainability, and assist in the attainment of fiscal targets for 2015 that take into account the present economic situation.”
Britain’s left-wing Guardian newspaper reported that Greece’s Prime Minister, Alexis Tsipras, had thereby yielded to the authority of the reviled “troika” — the European Union, the European Central Bank and International Monetary Fund — which is responsible for policing the Greek government’s economic and fiscal policies.
The troika has limited Mr Tsipras’s freedom of manoeuvre by preventing any unilateral moves on the terms of Greece’s bailout, and requiring Greece to fully repay the debt mountain the Prime Minister had wanted partly written off.
Mr Tsipras gained two substantive concessions: a likely reduction in the primary budget surplus — the excess of revenue over spending when debt-servicing costs are excluded — that the eurozone has allowed to Greece this year; and the opportunity to propose his own fiscal and economic policies rather than having them imposed by the troika.
The Greek government offered the EU finance ministers a list of measures it proposes to adopt to address the budget deficit.
They include: 1) an overhaul of Greece’s tax-inspection regime, aimed at improving tax collection and combating widespread tax evasion among the wealthy; 2) a crackdown on the illicit tobacco and fuel trade; 3) further labour market deregulation; and 4) to follow the advice of the Organisation for Economic Cooperation and Development (OECD) on introducing greater competition in the Greek economy.
Mr Tsipras further promised to make no changes to the existing austerity program, which include cuts to the public service. However, at the same time he proposed electricity and food subsidies for the poor, amounting to about €760 million ($1.1 billion).
While the Greek Prime Minister claimed the subsequent agreement was “a victory”, many of his supporters were not so enthusiastic.
According to the Guardian, Giorgos Katrougalos, the Minister for Administrative Reform, told Greek television he would resign if “our red lines were not respected”. He said several of the pre-election pledges that brought Mr Tsipras to power were not up for negotiation, including the rehiring of thousands of dismissed public sector employees.
Manolis Glezos, a veteran Greek leftist and a Syriza member of the European Parliament (MEP), denounced his party’s backtracking and suggested that the leadership had deceived voters by bending to demands by Brussels and by agreeing to prolong the previous program.
Another group within Syriza, called Communist Tendency, on Saturday described the Euro-group deal as “submission to the blackmail of the troika” and called on lawmakers to oppose it in parliament.
Sofia Sakorafa, another MEP for Syriza, wrote on her Twitter account, “The people gave a mandate for the memorandum to be annulled” and “we have no political justification to do the opposite”.
In addition to measures already announced, there are a number of things that the Greek government could do:
1) It needs to establish an independent authority to deal with the country’s massive problem of tax evasion.
2) It should remove tax and social security privileges currently enjoyed by the wealthy, including ex-politicians, judges and the military.
3) It should stop paying the salaries of the clergy.
4) It should ensure that the country’s wealthy ship-owners, who are expert at tax avoidance, pay reasonable levels of tax.
Any new arrangement must be endorsed by the EU member-states, as well as by the Greek parliament, in which the Syriza-led governing coalition has a 24-seat majority in the 300-seat parliament.