In the wee hours of Monday morning, after a marathon 17-hour session, Greece finally agreed to a deal with the euro zone that would give it enough cash to start reopening its shuttered banks, pull it out of arrears, and stave off its exit from the euro.
In some ways this deal (or any deal) might be seen as a victory, pulling Greece back from the brink of the possibly disastrous expulsion from the euro—but the accepted proposal also marks some pretty significant defeats at the end of a months-long struggle, with Greece conceding to many of the conditions it fought so hard against.
Fewer than 10 days ago, Prime Minister Alexis Tsipras had the Greeks vote on a proposal put forth by the Eurogroup on June 26 that included adding additional austerity measures, such as cuts to pensions and benefits, in order to trim the country’s budget. Tsipras and then-Finance Minister Yanis Varoufakis urged the people of Greece to vote “no” to the deal—saying that the cuts that came with it were unduly harsh and would worsen the country’s already fragile economy. Both said they would resign if citizens agreed to their creditor’s harsh terms (though leaked correspondence later showed signs that Tsipras was on board for making major concessions).
With the country already in arrears to the IMF, the people of Greece sided with their leaders, shooting down the proposal of the euro zone and pushing the country into uncertain economic territory. By calling for a referendum, Tsipras asked the people of Greece to either accept the onerous proposal from the Eurogroup, or to trust him and his party to negotiate a better one. The cost of the referendum (and its outcome) was high: The announcement of a vote halted talks, allowing the country to default, and the wait for the referendum and its outcome further delayed a potential agreement, locking the country in financial limbo. Some Eurogroup leaders were openly angry about the referendum. Sigmar Gabriel, Germany’s deputy chancellor was quoted as saying that the Greek government had “torn down the last bridges over which Europe and Greece might have been able to move towards a compromise.”
With so many false starts and political posturing that surrounded (and arguably delayed progress of) talks of a deal, it can be hard to tell how much Greece really won by rejecting the euro zone’s original plan—and how much better, or worse, the newly accepted deal actually is. The most contested issues in the original plan were the lack of debt restructuring and the heightening of already-burdensome austerity measures.
In looking at the language in the two proposals, there seem to be many similarities and few clear victories for Greece. The original plan required cuts to pensions, increasing taxes, and streamlining Greece’s VAT system, additional budget cuts, and privatization of some of the country’s assets. The new plan calls for cuts to pensions, increasing taxes, and streamlining Greece’s value-added tax [VAT] system, additional budget cuts, and privatization of some of the country’s assets.
Here is a more detailed look at how the language in the rejected proposal stacks up against the language from Monday’s deal, put together with help from my colleague Bourree Lam.
Old: “The authorities will adopt legislation to fully offset the fiscal effects of the implementation of court rulings on the 2012 pension reform … Create strong disincentives to early retirement, including the adjustment of early retirement penalties, and through a gradual elimination of grandfathering to statutory retirement age.”
New: “Upfront measures to improve long-term sustainability of the pension system as part of a comprehensive pension reform programme. Carry out ambitious pension reforms and specify policies to fully compensate for the fiscal impact of the Constitutional Court ruling on the 2012 pension reform and to implement the zero deficit clause or mutually agreeable alternative measures by October 2015.”
Old: “The Board of Directors of the Hellenic Republic Asset Development Fund will approve its Asset Development Plan which will include for privatisation all the assets under HRDAF as of 31/12/2014; and the Cabinet will endorse the plan.”
New: “Valuable Greek assets will be transferred to an independent fund that will monetize the assets through privatisations and other means. The monetization of the assets will be one source to make the scheduled repayment of the new loan of [European Stability Mechanism] ESM and generate over the life of the new loan a targeted total of EUR 50bn of which EUR 25bn will be used for the repayment of recapitalization of banks.”
Old: Launch a consultation process similar to that foreseen for the determination of the level of the minimum wage to review the existing frameworks of collective dismissals, industrial action, and collective bargaining, taking into account best practices elsewhere in Europe.
New: On labour markets, undertake rigorous reviews and modernisation of collective bargaining, industrial action and, in line with the relevant EU directive and best practice, collective dismissals, along the timetable and the approach agreed with the Institutions. On the basis of these reviews, labour market policies should be aligned with international and European best practices, and should not involve a return to past policy settings which are not compatible with the goals of promoting sustainable and inclusive growth.
Old: The reform will target a net revenue gain of 1 percent of GDP on an annual basis from parametric changes. The new [value-added tax] VAT system will: (i) unify the rates at a standard 23 percent rate, which will include restaurants and catering, and a reduced 13 percent rate for basic food, energy, hotels, and water (excluding sewage), and a super-reduced rate of 6 percent for pharmaceuticals, books, and theater; (ii) streamline exemptions to broaden the base and raise the tax on insurance; and (iii) eliminate discounts, including on islands.
New: The streamlining of the VAT system and the broadening of the tax base to increase revenue.
Though the implementation may differ in the long run, the plans are pretty similar. When it comes to monetary aid, Greece will receive a three-year €86 billion loan package. The country will get about €25 billion for bank recapitalization and another €35 billion for stimulus, to (hopefully) get the Greek economy back on its feet. Due to the immediacy of Greece’s need for Euros, the plan agrees to provide €5 billion by July 20 and another €12 billion by mid-August. Greece will also be forced to put about €50 billion of assets into a fund that can be “monetized” or sold for cash—a significant capitulation that has left many questioning whether the new deal is actually worse than the old one. The plan also includes an allowance for “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets,” a sure sticking point should the country not meet the deal’s ambitious goals, triggering the clause that allows for more budget cuts.
The biggest victory for Greece comes toward the end of the statement:
The Eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level. These measures will be conditional upon full implementation of the measures to be agreed in a possible new programme and will be considered after the first positive completion of a review.
The willingness to negotiate on the country’s still-staggering debt load is an important one, but the language is also pretty vague, and includes a caveat that significantly improving the markdowns of the debt isn’t an option.
That aren’t currently any significant plans to reduce the amount of debt that Greece owes, a massive loss for those who rejected the Eurogroup’s original plan for the same omission. The concession also may not be enough for Greeks who believed that by voting “no,” they were positioning their country for a better deal, or to break free from Europe’s punitive plans. That could spell trouble for Tsipras and his leftist-Syriza party, who came to power after promising to reform the harsh austerity measures imposed by the euro zone and to strengthen the Greek position in the European political sphere—neither of which were clearly accomplished in the end.
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