To surprise of many, Friday’s meeting in Brussels ended with white smoke, like Greek Finance Minister Yanis Varoufakis has hoped when he was referring to the signaling system used by the Vatican. The meeting, which was scheduled to discuss Greece’s proposal for a six-month extension of its loan agreement with the Eurozone lenders, was sealed with a deal to extend the current bailout by four months.
The Greek government formally submitted their request on Thursday, following pressure from the ECB, which decided to raise a cap of Emergency Liquidity Assistance to Greek banks to 68.3 billion euros. The modest increase of 3.3 billion euros of cash offered by the ECB was significantly smaller than the 10 billion euros that the Greek Central Bank had been requesting.
Even though the decision to ask for an extension was welcomed by the markets, Germany’s early reaction suggested a pessimistic outcome on Friday. A German document, prepared for the Euro Working Group meeting in Brussels on Thursday, called Greek proposal a “Trojan horse,” as it did not include any clear commitment to successfully conclude the current program and it fell short of a clear freeze of proposed Greek spending measures.
Additional pressure was applied by Donald Tusk, President of the European Council, who rejected Greek prime minister’s calls to convene a summit of Eurozone leaders on Sunday, in case there was no deal today. Moreover, SKAI TV also reported that Spanish and Portuguese ministers, who also have leftist parties gaining support in their countries, tried to block any deal favorable to Greece.
According to the Greek Mega TV, the temporary agreement includes a four month extension of Greece’s bailout program, with no austerity measures. However, Greece had to commit not to make any unilateral decisions regarding its plans to reverse reforms made by the previous Greek government, including increasing pensions and wages. Eurogroup President Jeroen Dijsselbloem added that Greek government will also have to present a list of reforms to the Eurozone by Monday.
Even though Jeroen Dijsselbloem announced that Greece has committed to honour the previous government’s financial obligations, today’s agreement does not mean that Europe’s problems are finally over. The extension was made only for four months and both sides will have to engage in another round of discussions over the permanent deal.
Before the meeting began, many Greek officials vowed that extension request was made not for the current bailout program, but for a loan agreement instead, which would have served as a transitional deal before the mutual agreement on the final program was reached. According to The New York Times, government spokesman Gavriil Sakellaridis said the request was made under “different terms,” while another government official, Labor Minister Panos Skourletis, also confirmed on Greek television that extension of the loan program would not be under the same terms as the previous loan agreement.
Initial reaction in Greece describes the concessions made by the Greek government as “politically poisonous.” The SYRIZA-led government is expected to face fierce reactions at home from its coalition partner Independent Greeks, as well as some of their own party members. The summary by Open Europe provides an assessment on why Greece seems to have failed to achieve many of its goals.
But regardless of SYRIZA’s former protestations it has never been in the Greek government’s self-interest to endanger the country’s future in the Eurozone. While the leftist-led government wants to keep the promises it made to electorate, it also cannot allow for Grexit to happen. The recent poll found that 81 percent of the Greeks wanted to stay in the single currency area, and 68 per cent indicated they hope to reach a “fair” deal with the Eurozone creditors.
As noted by Societe Generale, in case of the Greece exit from the Eurozone, the country would probably have to hold new elections as the government won a mandate to end austerity, not to exit the euro zone. It would be a risky thing for Alex Tsipras to face such elections so soon after winning a plurality in the country’s Parliament. Moreover, the neo-fascist Golden Dawn party might stand to be the prime beneficiary of Alexis Tsipras hitting the rocks.
Mr. Tspiras has been asked to present the list of structural reforms on Monday, for evaluation by the Troika the following day. The preparations of a mutually acceptable list might turn out to be another big challenge for the Greek government, considering that all reforms would have to be endorsed by the Greek Parliament first.