The media is abuzz with hyperbole calling the Greek agreement to work toward a deal “humiliating”, “capitulation”, “surrender” or worse, “a coup”. Weighty names such as Nobel Laureates Krugman and Stiglitz have also endorsed the #ThisIsACoup hasthtag that has been trending on Twitter. The idea behind all of these is the supposed “near total” loss of Greek sovereignty. In particular, the idea that Greek public assets would be handed over to an agency under EU supervision for privatisation has provoked particular fury.
Another idea that is doing the rounds is that the creditors exacted revenge for Tsipras having dared to call a referendum. The statement that the conditions under the new programme are much harsher than what was on offer has been repeated ad infinitum.
The third narrative floating around is one that holds Syriza and Tsipras primarily responsible for Greece’s current problems. The Eurogroup statement, for example, seems to blame doubts about debt sustainability primarily on the failure of Greeks to implement policies over the past few months. A particularly pernicious version of this is the politically tone-deaf and highly unprofessional tweet from Peter Kazimir, the Slovak Finance Minister, who said the agreement was tough for Athens because of their “Greek Spring”.
The problem with all three of these narratives that are very widespread and taken to be received wisdom by many, including in the mainstream press, is that they are all wrong.
First, the loss of sovereignty seen by Greece is real, but it has several precedents. Developing economies in crisis have often seen a far greater loss of sovereignty than Greece has. It is true that the lessons from the IMF’s and World Bank’s track record, showing that forced conditionality not owned by the country often does not work, have been ignored in the case of Greece. But what is happening here is neither new nor unusual.
What is new, is that a member of the EU, a developed OECD economy is now seeing what we collectively have inflicted upon several countries in Africa, Asia and Latin America for decades. If you need to borrow money from multilateral institutions, a loss of sovereignty always ensues. The degree of conditionality for Greece may look excessive sitting in the European Union, but for anyone with a development background this is familiar, if controversial territory. If such programmes have not been called coups before, why are they now?
Another point to be noted here is the fact that the majority of the financing will come from 18 other Eurozone economies through institutions such as the ESM. All of these are also functioning democracies with their own politics, challenges and red lines. It is true that the misinformation and poor narratives about the crisis and the pernicious, but inaccurate “lazy Greek” narrative has had a big influence on the politics and public debate in hawkish countries such as Germany. But this disease of a poorly informed public debate afflicts all countries including Greece, and is part and parcel of the messy reality of today’s democracies. It is hard to think how delivering as much as Euro 80bn in additional money to Greece that a new programme would entail can be seen to be a coup. If anything, the Finnish government, supposedly one of the perpetrators of the coup, is more likely to fall over approving the deal than Tsipras having to resign as Greek Prime Minister. The political constraints in Germany, Finland and other creditor countries are as real as those in Greece. The agreement is messy, ill-informed and on many points economically and financially unviable in the medium term, but a coup it is definitely not.
Next, let us consider the point that the programme conditionality is now much harder than what was on the table just before the referendum was called. That compares apples to oranges. What was being discussed before the referendum, was the completion of an existing second bailout agreement that was close to expiration. What will be negotiated now is an altogether new deal with significant additional money. To think that creditors would have approved a third bailout deal with no conditionality if an extension had been agreed with Greece is to be naïve and ignore political realities.
Are the conditions really much tougher? With the exception of clauses that reverse some of the changes Syriza made in rolling back earlier commitments, most of the other conditions on product market and labour market liberalisation have been part and parcel of earlier agreements. The terms of the pension and VAT reform were more of what the creditors had demanded, but now, with the new agreement to be negotiated, they are also putting more money on the table. On austerity too, the conditions are no tougher than what was being discussed when Tsipras called the referendum and additional austerity in the short term will have more to do with the rapid deterioration of the Greek economy than any additional pound of flesh demanded by the creditors.
None of this is to say that the conditionality is appropriate. It is excessive, often with an unclear link to the supposed goal of boosting Greek productivity and growth, and far too prescriptive. The austerity is also excessive despite economic evidence having clearly stacked up against it. The privatisation of public assets has also always been part of the Greek program, no matter how unrealistic its goal of mobilising €50 billion may have been.
Yes, the programme is poorly designed, but no more so than the one on offer before Tsipras called a referendum. So there is little gratuitous “punitive” element in the conditionality – just bad economics and a bad politics.
On the last point, those rightly criticising Syriza’s inability to have struck a deal with the creditors over several months and the additional economic dead loss from the uncertainty this cost, push their point too far. Much of the blame, quantitatively and structurally speaking, of Greece’s present problems is not to be borne by Syriza, which only came in a few months back, but by everyone – ND, Pasok and the Troika who went before. Syriza has caused additional damage, yes, but the main reason Greece’s debt burden is still not sustainable is because of all the mistakes made before they ever came into power.
In summary, the Greek agreement is not a coup, but nor is it financially, economically or politically sustainable in its present form. There are few signs of punitive vengefulness by creditors in the content of the agreement, though the rhetoric has strayed into that territory. And those blaming the whole mess on Syriza are as wrong as those who call the agreement a coup.
The best thing that can happen now is the gradual easing of austerity, significant, if tiered additional debt relief for Greece and a less intrusive approach to reforms, as trust between the Greek cross-party consensus behind the deal and the Institutions and Eurozone partners is gradually, but painfully built back. The sooner this happens, the better it is for the whole of the Eurozone, which came dangerously close to fracturing over Greece. Will this happen? It is hard to say, but the very painful and existentially threatening compromises both sides have been ready to make give me some hope.
Sony Kapoor is managing director of Re-Define think tank and a Senior Visiting Fellow at the London School of Economics