On Monday the New York Times published an opinion piece by Greek Finance Minister Yanis Varoufakis that outlined a number of “red lines” that he was not prepared to cross in negotiations with his European partners. Yesterday’s failure to agree on an extension of Greece’s bailout programme may suggest the Eurogroup does not understand what those “red lines” mean and how close they are to a deal.
In fact, they may be within just two words of a deal!
The lines that we have presented as red will not be crossed. Otherwise, they would not be truly red, but merely a bluff.
This looks like Greece refusing to compromise on issues such as whether to repay its creditors in full (something the Eurogroup is strongly pushing for). But, as they say, context is everything.
Here’s the quote people should have included:
How do we know that our modest policy agenda, which constitutes our red line, is right in Kant’s terms? We know by looking into the eyes of the hungry in the streets of our cities or contemplating our stressed middle class, or considering the interests of hard-working people in every European village and city within our monetary union. After all, Europe will only regain its soul when it regains the people’s trust by putting their interests centre-stage.
This is the crucial passage of the article and it paints a very, very different picture to the one sketched above. The “red lines” here are not technical discussions of Greek debt forgiveness, but humanitarian concerns. That is, Varoufakis is saying he will not compromise on Syriza’s commitments to help the poor and the hungry in Greece and indeed across the Eurozone.
This paints a very different picture of where Greek negotiators currently stand, and a much more optimistic one. These are the Greek government’s demands for a final agreement with its Eurozone partners, as leaked to the media in advance:
- They propose 30% of the memorandum of understanding between Greece and the Troika agreed in 2012 be scrapped in exchange for a commitment to 10 new reforms agreed with the Organisation for Economic Cooperation and Development (OECD).
- Greece’s primary government budget surplus target, equal to 3% of GDP for this year, to be reduced to 1.49%.
- Reduce Greek debt through a debt swap plan in which outstanding debt is converted into either GDP-linked bonds, where the interest rates are linked to Greece’s economic growth, and “perpetual bonds” that have no formal expiry date but the amount can be called back by the holder at any time.
- Introduce measures to ease the country’s “humanitarian crisis” as announced by Prime Minister Alexis Tsipras on Sunday. These include a rise in the minimum wage and the payment of a bonus to low-income pensioners.
Varoufakis’ “red line” can easily be read as relating only to the (relatively) uncontroversial point that the Syriza-led government wants to be given space to address Greece’s humanitarian crisis. This is separate from the more difficult points relating to the detail of the country’s reform programme, where the divisions within the Eurogroup are widest.
But most importantly the four points above are not the terms currently being negotiated. Instead, Greece is only asking the Eurogroup for a short-term loan that will allow the country to continue discussions over the next few months without running out of money.
As such what they need from these talks is an acknowledgement in principle that the terms of the 2012 memorandum are open to renegotiation and the right not to pre-commit to terms that would tie their hands in those negotiations.
So how close are we to such a deal? Greece would have accepted this draft agreement simply because it contained a line that says, “We also agreed that the IMF would continue to play its role in the new arrangement.” Those last two words, emphasis added, are crucial.
Here’s what Eurogroup Jeroen Dijsselbloem said last night after that effort fell apart (emphasis added):
- yes, there is a flexibility in the program; we are open to discuss the replacing measures, but not by taking unilateral actions;
- a request to come with the commitment not to roll back any measures, unless agreed with the institutions and unless fully funded;
- a request should come with an unequivocal commitment from Greece to honour all financial obligations to its creditors and of course to assure stability in the financial sector;
- on the basis of such an extended program, within which flexibility is possible should be also the commitment for the Greek authorities to successfully conclude the program. We should have the reassurance that that is the intention;
- any request should be on the basis of the commitment to work closely and to continue the dialogue with the institutions and the Eurogroup.
On this basis, the current stumbling block is clear — Greece does not want to pre-commit to “honour all financial obligations to its creditors” within the current programme. This explains why they rejected yesterday’s final Eurogroup draft out of hand as it explicitly called for Greece to honour “the agreed framework”.
So that might well be all it takes to reach a provisional deal here — two words. And perhaps the removal of “all” from Dijsselbloem’s outline above.
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