Greece’s seemingly endless crisis seems to be at a stalemate, with neither Greece nor its international creditors willing to budge on its bailout deal.
But according to a note from Mujtaba Rahman and Federico Santi at the Eurasia Group consultancy on Tuesday morning, a deal is coming. They expect an emergency euro summit, now reported by the Financial Times, to yield an agreement. But they also think the deal will be structured “in the hope of bringing about regime change” in Greece, the notes says.
That’s a pretty big allegation, but they have got a fascinating justification. The note argues that Greece is about to negotiate an extended programme with its creditors that will be more fragmented and politically painful than any of the previous deals.
They think Greece will only be offered small “sub-tranche” payments until the end of the year, or March 2016 (a date that has previously been reported as possible) in exchange for passing specific structural reforms (like pension age increases) — a tortuous process which would put Tsipras under the political spotlight constantly, with every unpopular new move getting renewed attention.
Here’s the relevant section from the note (emphasis ours):
Greece will have to legislate specific reforms for specific, incremental amounts of financing. This has two advantages. Firstly, from a creditor perspective, it will keep pressure on Greece as the government will be forced to return to parliament time and again for small amounts of financing necessary to avert default. The growing sentiment across the Euro area is that a pro-memorandum/Euro majority exists in Greece: it is just not this current majority. Therefore, the more pressure that can be kept on Greece the better, as the more likely it is a new majority will emerge that creditors are able to do business with (Tsipras losing his majority in parliament that precipitates changes to the composition of the governing coalition).
This isn’t the first occasion on which the timing of the financial deals has been questioned for political bias. Back on December 4, 2014, ministers from around the eurozone were reportedly considering extending Greece’s bailout for six months, while Reuters reported that the government was “only willing to consider an extension of a few weeks to the unpopular program.“
Five days later, the government (at that time led by the centre-right New Democracy party) called the presidential election which quickly led to its downfall. Tsipras himself has suggested that the decision to opt for a short financing deal was politically motivated — since it would both hurt Syriza electorally and make their early months of government more difficult. But that pressure was engineered within Greece, not by the country’s lenders.
The note from Eurasia Group continues (emphasis ours again):
Our baseline scenario (60%) for this week is that of a deal, arrived at in the context of a Euro Summit this weekend. This will extend the current bailout until the end of the year or March 2016, and provide incremental financing to Greece via sub-trances for specific legislated reforms (€X for VAT reform, for example).
In some ways the fact that the IMF and the eurozone are trying to pressure Greece isn’t surprising — the IMF regularly reviews its programs and doesn’t hand out years worth of money precisely because governments tend to lose their incentive to reform if they have already been paid.
And the European Commission has already pretty much done this in the past: For example, the March 2013 bailout “sub-tranche” was “conditional on Greece having achieved the agreed milestones” But at that time, the sub-tranches were part of a larger agreement that also came with an initial €34.4 billion ($US38.71 billion, £24.81 billion).
Back then, the government was able to pass multibills containing many reforms at once. This time, it sounds like Eurasia Group expect the whole thing to be made up of sub-tranches, which may be even more closely tied to specific reforms, and done one-by-one. Here are Rahman and Santi again:
It is unlikely the government will be able to legislate a “multibill” — i.e. one bill containing all of Greece’s reforms in one go — as a large number of reform areas remain undiscussed. Fiscal policy, pensions, labour and debt relief have proven so politically difficult they have crowded out discussion on other reforms the institutions want to see progress on, for example, product market liberalisation. A multibill cannot therefore work.
What’s most controversial is the question of whether the eurozone (and it’s them, rather than the IMF, that Eurasia mention) are putting extra pressure on because it’s a radical government. There’s only one reasonable defence for that — the level of opposition they have faced so far might make them sceptical that the government will push ahead with the promised reforms.
But if there’s any pressure being applied simply for the purposes of toppling Tsipras and ensuring a more pliant regime, then that would be a clear abuse of the whole system — and would likely only make Syriza more popular.