A Humiliating Deal for Greece

By John Cassidy, The New Yorker

14 July 15

s Europe’s leaders return home from Brussels, after a marathon negotiating session that kept Greece in the eurozone at great cost to the country’s political sovereignty, the political landscape of the continent looks different, and not a little ominous. In forcing Alexis Tsipras’s government into abject surrender—over the entreaties of some of its neighbors, France in particular—Germany has, for perhaps the first time since reunification, in 1990, blatantly exerted its power on the European stage.

Ever since Greek’s leftist Syriza party was elected, in January, on a platform of ending E.U.-imposed austerity policies, it has been pretty obvious that Angela Merkel, the German chancellor and Europe’s de-facto leader, held the key to resolving the crisis. Twice in the past few months, first in March, and again last week, I expressed the hope that Merkel would rise above the conservative German economic ideology of “ordoliberalism,” as well as German prejudices against the southern Europeans, to bring about a solution that, while exerting significant concessions from the Greek government, preserved the ideals of commonality and solidarity that underpin the European Union. Tragically, the Chancellor failed to rise to the challenge.

Rather than adopting the mantle of a European stateswoman, she sided with her hard-line finance minister, Wolfgang Schäuble, forcing Athens to grovel to its creditors on pain of departure from the eurozone—an option to which the Greek public was opposed. Now that Tsipras is back in Athens, he faces the unenviable task of persuading the Greek parliament to approve an agreement that is perhaps the most intrusive and demanding contract between an advanced nation and its creditors since the Second World War. If Greece’s parliament refuses to go along with the deal, the country won’t receive any more money, its government will be forced to default on more loans, its banks will collapse, and it will be forced to issue its own currency, crashing out of the eurozone.

A six-page statement released by the eurozone’s leaders on Monday afternoon spelled out the terms of the Greek surrender. The document was couched in language that seemed designed to inflict maximum humiliation on Tsipras and his Syriza colleagues. Take, for instance, the role of one of Greece’s creditors, the International Monetary Fund, which many Greeks blame for the austerity policies imposed on them by the bailouts of 2010 and 2012. In the past couple of weeks, as Tsipras has been forced to give in here, there, and everywhere, he has insisted that, under the new agreement, Greece would see the back of the I.M.F., at least. Not so. The statement notes that when member states request assistance from the European Stability Mechanism (an E.U. bailout fund, based in Luxembourg, that was set up in 2012), they must also apply for help from the I.M.F. “This is a precondition for the Eurogroup to agree on a new ESM programme,” the statement reads. “Therefore Greece will request continued IMF support (monitoring and financing) from March 2016.”

What about restructuring Greece’s vast debts, which Tsipras had also said would be part of the deal? The statement says that the Eurogroup (the eurozone’s finance ministers, essentially) agreed to consider debt sustainability, but only after Greece implements the terms of the new bailout to the satisfaction of the “Institutions” that will oversee it—i.e., the dreaded “troika,” consisting of the European Central Bank, the European Commission, and the I.M.F.

“The Eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that [Greece’s] financing needs remain at a sustainable level,” the statement says. “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.” Even then, the actions to be considered would be modest ones. “The Euro Summit stresses that nominal haircuts on the debt cannot be undertaken,” the statement continues.

About the only area where the creditors agreed to retreat was in modifying a proposal that Greece be forced to transfer some fifty billion euros’ worth of national assets to a new privatization fund, located outside Greece and administered by foreigners, which would sell the assets to the highest bidder. When word of this idea emerged, on Saturday, in a leaked internal memo from the German finance ministry, some people assumed that it was a bargaining chip intended to force concessions from Syriza in other areas. Not at all. In Merkel’s late night talks with Tsipras, French President François Hollande, and European Council President Donald Tusk, the German Chancellor reportedly said that the privatization-fund proposal was one of her “red lines.” Under pressure from the French and the Greeks, the German side apparently recognized, eventually, that locating the privatization fund outside Greece would be one humiliation too far. They did, however, still insist on setting one up; the statement released on Monday said that the fund will be based in Athens and “managed by the Greek authorities under the supervision of the relevant European Institutions.”

That small concession aside, the Greeks were subjected to a harrowing lesson in the workings of a currency zone that, for many European countries, has turned into a straightjacket, with Germany holding the keys to the padlocks that secure the straps. In the combative style for which he has become famous, Yanis Varoufakis, the former Greek finance minister, described the agreement as a “a new Versailles Treaty” and likened it to a “coup d’état.”

Such language should be used carefully when describing a continent that has seen far too much conflict, extremism, and dictatorship. There hasn’t been a war, and Greece is still a democracy. Even now, the Greek parliament has the power to reject the agreement and pursue a Grexit from the eurozone. Indeed, one of the criticisms that can be made of Tsipras and Varoufakis is that they didn’t more seriously develop the option of an exit during the five months they’ve spent squabbling with Greece’s creditors. For all the risks and hardship that would accompany such a move, it would have offered the eventual prospect of allowing Greece to break free and pursue its own course.

But if what happened over the weekend doesn’t quite amount to a coup, it has nevertheless been a ruthless display of power politics on Germany’s part and a chilling reminder of the remorseless logic of a monetary union dominated by creditors and pre-Keynesian economics. In the words of Paul De Grauwe, a well-known Belgian economist who teaches at London School of Economics, a “template of future governance” of the eurozone was written over the weekend: “Submit to German rule or leave.” In the years and decades ahead, Germany may discover that many Europeans would prefer the second option.