The last-ditch agreement that’s supposed to keep Greece in the euro almost never happened. Even now, its designers are unconvinced it will work.
It will take “a small miracle,” Slovak Prime Minister Robert Fico said after the 17-hour summit that ended Monday. “There’s little faith in the current Greek government,” Dutch Prime Minister Mark Rutte told his Parliament Thursday.
The deal promises to further degrade a shattered economy through spending cuts and tax increases; it relies for implementation on a self-described party of the radical left; it counts on sales of state assets that Greece’s economy minister says “do not exist;” it leaves untouched a debt load the International Monetary Fund believes will never be repaid.
If anything, Greece and its creditors are further apart than ever, with the country’s leaders arguing they accepted a bad deal under duress.
“It’s clearly a Band-Aid solution,” Ian Bremmer, president of Eurasia Group, a political-risk consulting firm, said in an email. “I’d love to say we'll be back here in a year or two. It’s more likely to be a few months.”
For now, anyway, things are on track. Greek lawmakers did as demanded, approving new austerity measures. Germany’s Parliament ratified the start of talks for a three-year rescue plan. The European Central Bank increased its emergency credit line to Greek lenders.
“We always acted on the assumption that Greece will remain a member of the euro area,” ECB President Mario Draghi said on Thursday. “There was never a question.”
To others, there was.
Following a July 5 plebiscite in which 61 percent of Greeks backed Prime Minister Alexis Tsipras’s rejection of austerity, Jean-Claude Juncker, president of the European Union’s executive arm, spoke openly about Greece leaving the euro, also known as “Grexit.”
Europe presented last weekend’s talks as a now-or-never chance to find a durable solution to five years of crisis fighting. The hard line, which included for a moment a German idea to suspend Greece’s euro membership, forced Tsipras to capitulate.
The demands went “beyond harsh into pure vindictiveness,” wrote Nobel laureate economist Paul Krugman.
The process that began Sunday afternoon could hardly be described as elegant. Deep inside the Justus Lipsius building, leaders of the 19 euro-area countries and their aides shuttled between plenary sessions and smaller huddles. Some napped when they could; others threatened to leave as talks verged on failure.
Rutte led an informal group of “hawks” and told colleagues that an accord seen at home as too generous could bring down his government. Finland’s Juha Sipila fretted he didn’t have a domestic mandate to begin negotiations.
As the sun rose over the Belgian capital, Germany and Greece had reached the potential dealbreaker: a fund to unload up to 50 billion euros in Greek government assets.
German Chancellor Angela Merkel wanted the proceeds dedicated to paying debt, owed mainly to the euro governments; Tsipras wanted some re-invested at home. Both were ready to bolt before European Union President Donald Tusk and France’s Francois Hollande cajoled them into continuing.
Whatever the details of the compromise, the money they argued about will almost certainly never materialize.
Tsipras’ Coalition of the Radical Left, or Syriza, came to power promising to halt state disposals. His economy minister, George Stathakis, told Bloomberg Television the fund would serve as a “guarantee” to secure the bailout. “I don’t think we will proceed with real privatizations,” he said.
Syriza’s endorsement remains grudging. In parliamentary debate on Wednesday, Finance Minister Euclid Tsakalotos said it “will be a burden for me for the rest of my life.” Tsipras said he agreed to the terms “with a knife at my neck.”
The key question of debt relief, or lack thereof, also hangs over the deal. In an analysis released Tuesday, the IMF said Greece needs its debts reduced “far beyond” what European partners have so far been willing to entertain. The Washington- based organization estimated Greek debt will peak at almost 200 percent of gross domestic product. By comparison, most advanced economies are well under 100 percent.
Asked Friday whether an accord is viable without easing the burden, IMF Managing Director Christine Lagarde told interviewers on France’s Europe1 radio station: “The answer is quite categorically not.”
German Finance Minister Wolfgang Schaeuble told Greece the only way it will get a debt reduction is to leave the euro.
Greece’s task will only get tougher as the economy shrinks. It has already contracted by a quarter in the last five years. Unemployment is the highest in the euro area at more than 25 percent – and almost 50 percent for young people.
Greek anger was on display Wednesday night in Athens, as police fired tear gas to disperse anti-austerity protesters in the central Syntagma Square. The brief clashes were reminiscent of 2011, when masked protesters fought running battles with riot police in central Athens.
Across the road, lawmakers were about to vote to accept the bailout deal. Defense minister Panos Kammenos called it “the product of a blackmail, of a coup d'etat” that would make Greece an example of “Germany’s hegemony.” Arguing Greece had no other choice for now, he voted for it anyway.