Thursday, July 09, 2015

9 July 2015 Recap: The Case for Optimism

At no point since the referendum was called two weeks ago have I felt more optimistic about a deal being reached between Greece and its creditors. Of course, the obstacles are still many, but there is, finally, a case for some optimism. 

In retrospect, it is clear that the referendum, destructive as it was for the real economy and divisive as it was for Greek society, served to accelerate the prospects for a deal. First, it decimated the opposition and thus removed, at least for now, the prospect of a short-lived Tsipras government (which has always been his greatest fear). This allowed for a broader pro-deal coalition to emerge. Second, it produced a sharp rebuke from Europe, which put Grexit squarely on the table, thus forcing the Greek side to ‘cut to the chase’ as well as guaranteeing that the pro-European Greek opposition parties will support any deal that comes to parliament because the alternative is Grexit. Third, by virtue of the changes in the domestic and international landscape, it weakened the opposition within SYRIZA. Of course, there are still objections within SYRIZA, but these are no longer enough to hold back Tsipras because they are no longer enough to threaten his survival. 

With the changes in leadership (#Varoufexit) and the cover provided by France, Greece seems to finally have both a diplomatic strategy (which includes negotiations and back-room dealings rather than merely walking into a room and lecturing people—a la Varoufakis); and it has a substantive plan that includes many of the proposals that the Greek people just rejected in the referendum as well as long-standing reforms that were either never introduced or never implemented. In short, the basis for negotiations is much more solid, although debt is still hanging as an issue without an indeterminate conclusion.

The reaction with SYRIZA has been muted, with energy minister Panagiotis Lafazanis making the loudest noises (here, in Greek). A press report from the German newspaper Bild  that SYRIZA would substitute ANEL with Potami in the government coalition seems to have quieted ANEL (whose leader made no mention of the military cuts in the proposal, even though that was a red line for him). By all accounts, it seems that parliament will offer Tsipras the cover to go ahead and negotiate a deal on the basis of the proposal sent today, although we can never be sure of the political costs that will be incurred in the process. 

In Europe, the mood is more mixed. On one hand, Greece seems to have found some important allies, and the fact that there is finally a serious negotiating team (= not Varoufakis) who can engage in real numbers must be such a relief that in itself improves the prospects for a deal. Moreover, Donald Tusk, EU Council President, tweeted that “Realistic proposal from Athens needs to be matched by realistic proposal from creditors on debt sustainability to create win-win situation.” Thus the debate on debt intensified, although Angela Merkel said that a straight-out haircut is impossible but that other debt relief might be achievable. As always, the hardest line came from Wolfgang Schäuble who suggested that Athens needs to regain some trust by actually doing something rather than just promising to do something (and this could explain the rush parliamentary gathering scheduled for Friday).

Of course, this is a rapidly evolving game: we still do not know how all of SYRIZA will react, nor do we know whether the proposals from Athens are enough to erase the ill-will created by the referendum; nor do we know whether the Greek people will openly accept a new memorandum that is clearly worse than the memorandum they just resoundingly rejected; nor can we be sure that any deal will be durable since implementation in a SYRIZA government might well lag. But it does seem that Tsipras is set on getting a deal and has enough political cover to do. 

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