The Eurogroup statement on Greece: win-win

by George Hatjoullis

The first pass at reading the Eurogroup statement left the distinct impression that Greece had capitulated without achieving anything. It was not until the press conferences given by Yanis Varoufakis, the Greek finance minister, and unusually but significantly,Wolfgang Schäuble, the German finance minister, that the significance of the statement dawned. It is a win-win agreement.

Schäuble made clear that earlier exchanges had resulted in a breakdown of trust between Greece and the rest of the Eurogroup. He made clear that Greece had been isolated and friendless in this Eurogroup meeting. This statement was about restoring trust and, though the process of restoration is not yet complete, progress had been made. He also reminded everyone that every time there is a proposed extension of a programme he has to clear it with the Bundestag. He too is subject to democracy.These are important statements from someone of his influence.

The Eurogroup statement (http://bit.ly/1EyA3dA) indicates that Greece has requested a bailout extension but there is an important change of language:

The Eurogroup notes, in the framework of the existing arrangement, the request from the Greek authorities for an extension of the Master Financial Assistance Facility Agreement (MFFA), which is underpinned by a set of commitments.

It is not a bailout but a MFFA. This may sound like semantics but a moment’s thought should reveal the huge emotional difference between the two. The Syriza appeal is as much about Greek dignity as substance and such formal neutral language plays a part in restoring dignity. The next section is the one that initially throws the casual reader:

The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions. This extension would also bridge the time for discussions on a possible follow-up arrangement between the Eurogroup, the institutions and Greece. 

The Eurogroup were always willing to give Greece an extension, based on existing conditions being met. It had also already been indicated that they were happy to make ‘best use of the given flexibility’. The Eurogroup statement is a reiteration of a standing statement. So what changed? Note the Troika has formally become the institutions. Small but significant for the Syriza and Greek mindset. The material change would seem to be in giving ‘flexibility’ more substance and this occurs further along the statement.

The institutions will, for the 2015 primary surplus target, take the economic circumstances in 2015 into account. 

The Eurogroup are open to providing some fiscal breathing room in 2015! This is an achievement. Moreover, there is a reference to ‘appropriate’ primary fiscal surpluses in the future. Room for discussion and for the Eurogroup to give Greece breathing space down the line as well.  These are important clarifications of the meaning of flexibility. Of course, there is conditionality.

The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday February 23. The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review. This list will be further specified and then agreed with the institutions by the end of April

The Greek government will need to present its proposed reforms by Monday and have them agreed. The process may yet breakdown on Monday, but at least the Syriza government has been given a chance to be co-author of Greece’s reform programme. This is another important if subtle variation. Reforms are no longer imposed but agreed. Moreover, so long as the net fiscal impact is neutral Syriza has an opportunity to shape the reforms to suit their domestic political agenda. This is a much more important achievement than it seems at first pass.

We must await details on Monday but there is no doubt that this Eurogroup statement is win-win. It has stayed within the existing agreements and yet given Syriza enough degrees of freedom to go a long way towards meeting its domestic mandate. I congratulate both Yanis Varoufakis and Wolfgang Schäuble, both without question the architects of this agreement. Now we await some detail on the reforms.

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