The 12th of July agreement with Greece: a complete takeover that doesn’t fix anything
The Greek and German Parliaments have now voted in favour of a compromise on a third Greek bailout. However, for the first time in the history of the monetary union, eurozone finance ministers have openly suggested the exit of a member state to heads of state as a viable option. This explication of the reversible nature of euro membership is potentially very serious, as it puts an end to the alleged irreversibility of the monetary union. As many commentators have stressed, it transforms the euro into a fixed exchange rate system that could be subject to change, which affects the very nature of the euro project.
The final agreement sees Greece remaining a member of the eurozone, confirming the political attachment member states have towards the integrity of the eurozone. The provocation by German finance minister Wolfgang Schaüble, could therefore be forgotten. The Greek debt will not be partially annulled, but payment could be rescheduled in line with the implementation of a new programme of economic reform which will be negotiated with the Greeks. The logic of previous programmes remains unchanged: new, drastic austerity measures will allow Greece to clear their primary surpluses, which will be sufficient to re-establish the solvency of the country. The revival of a 50 billion euro privatisation programme will allow accelerated debt reduction and guarantee new loans approved by creditors (probably in the range of 82 to 86 billion euros for the period 2015-2018).
From a certain point of view, the new conditions laid down by creditors following their financial aid to Greece could seem legitimate. Considering that the failure of previous programmes rests solely on Greece, who didn’t know how to implement the sufficient structural reforms in order to revive the economy, it is logical for creditors to demand strong additional guarantees and to reaffirm that there is no doubt that debts will be reduced. This interpretation of the crisis, supported by the German parliament, is betting on the fact that Greek economy will make a strong recovery, sufficient to repay the debt in full as soon as the necessary reforms are at last applied to areas such as taxes, the job market, the deregulation of the markets, privatisation, fighting corruption, the de-politicisation of administration… To succeed, Monday’s agreement will have to all but put the country’s authorities under full supervision: the return of teams of ‘Troika’ experts to Athens, the right to veto ‘institutions’ on any new law, the abandonment of any laws adopted by the Syriza government since January without creditors’ agreement, the ‘technical aid’ of the European Commission meaning de facto the implication of European authorities in the management of Greek public affairs… If the modernisation of Greece is the only condition truly necessary to keep it in the eurozone and repay its loans from creditors, then why not push the reforms, even at the price of the temporary suspension of the sovereignty of the Greek people?
Unfortunately this interpretation is not right and cannot be successful.
1 – Perpetual austerity makes any true recovery of growth and any debt reduction impossible. The new course of austerity accepted by Alexis Tsipras condemns Greece to fall rapidly back into recession, while the timid recovery at the end of 2014 has reversed with the stalemate in negotiations since February. In the short term, the budget adjustments to be put in place from now until the end of the year will have to bring in at least 3% GDP if it hopes to reach the primary surplus objective of 1% set by institutions. In the long term, the objective of a primary surplus sustainably maintained at 3.5% GDP from 2018 condemns Greece to sustainably maintain a budgetary austerity which will make any truly strong revival of growth impossible. The 35 billion euro investment plan proposed by Jean-Claude Juncker will allow time for these goals to be realised and the promised structural reforms, as we know, will only have a significant effect on growth in the long run. With no strong recovery, the Greek debt will remain unviable and the question of the country’s restructuring will inevitably be left aside.
2 – Greek being put under complete supervision by European authorities controlled by Germany is neither a legitimate nor effective way to push for modernisation. That in the 21st Century, in Europe, foreign technical authorities taking control of an entire country could be considered a legitimate strategy is astonishing. In the 19th Century, France and Great Britain used such methods by designating control commissions to Greece (already) and Egypt, tasked with taking control of public budgets in order to ensure priority repayments to creditors. Nor did they hesitate to take direct control of public assets (for example, the transfer of Egyptian state actions in the Suez canal to Great Britain at the end of the 19th Century in the name of repaying British debts), but here we’re talking about the colonial period, and the supervision did not impact all of the administration… Our ancestors at least had the modesty to admit that you can’t modernise a whole society by force…
3 – Greek debt will never be repaid. The IMF clearly exposed elements of the problem in their report of the 2nd of July (published at the request of the United States). Taking into account the potential for Greek growth in the long term, Greece’s return to the markets is not achievable without the restructuring of their public debt which would involve, at least, the annulment of the bilateral loans allowed by the EU in 2010 (53 billion euros). Failing this, Greece will not return to the markets and the EU will have to refinance a good part of their loans indefinitely. Is that the Europe that we want? How can we conceive the indefinite supervision of an EU member state?
The 12th of July agreement is therefore the wrong agreement, made for the wrong reasons. Tsipras refused to consider the alternative suggestions by his ex-finance minister, Yanis Varoufakis (default, the nationalisation of the Bank of Greece, parallel currency). He was afraid of a ‘leap into the unknown” for which his team had visibly never prepared. Germany and her ‘northern’ allies fundamentally want Greece to exit the Eurozone and have therefore proposed, as a sole alternative, a ‘Carthaginian Peace’ which no free government would have accepted. With no credible and ready-to-go ‘Plan B’, these totally unreasonable terms have been accepted by Greece. They will satisfy the ‘northern’ parliaments and ensure, for a few months, the continuation of European aid. Nevertheless, they also carry great dangers, as they strengthen ‘southern’ populist parties, even the Greek Nazis, the latest opposition party…
The 12th of July agreement is leading Europe and Greece to disaster. It directly violates the liberal principles of freedom, responsibility, solidarity and democracy that are the foundation of the European model. The supervision of a European state is not acceptable. The aggravated austerity cannot be defended by any economic argument. This agreement brings nothing in the way of a tenable and sustainable answer to the crisis.
The entrance of Greece into the eurozone was a mistake. The first two aid programmes failed. Recovering from the crisis will inevitably entail creditors taking their losses and Greece taking back the reins of their own destiny, and full responsibility.
Such an outcome is hard to imagine if Greece stays in the eurozone.