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Commentary

Greece Has To Kneel, Beg and Completely Capitulate, Says New Deal

Greece finally has a deal. We don’t know if this is agreed upon in pure exhaustion after 17 hours of negotiations, but it’s something that involved total capitulation by Greece. It is even worse than the deal that Greece was getting earlier (before the referendum).

It gives Tsipras, the Greek PM, three days to get the major demands passed through the Greek parliament. We saw a few things earlier, in our post, which I’ll paste here:

image

What Now?

By July 15, Tsipras must do the following, through parliament:

  • they have to raise the sales tax, and cut pensions.
  • Any misses in the deficit/surplus expected will automatically trigger some very specific spending cuts
  • Greece must keep the statistics and the privatization piece completely independent of the Greek government (or limit the influence)

Once this is done, the parliaments of Germany, Austria, Holland, Finland and others that previously opposed a deal will have to say okay to doing the bailout.

Only then with the ESM actually even meet to discuss the bailout specifics. Meanwhile Tsipras has to again negotiate for bridge financing to pay the ECB for what is due on July 20th.

We Doubt These Are Acceptable to the Greek People

There’s something strange going on. The Greek people just refused a lower level of austerity (in the earlier deal offer) and now they will be told to accept much more austerity and humiliation? For an alternative that must actually sound good in comparison — the Grexit and the printing of a new drachma?

I think this is very very strange, and Tsipras has got to have more cards up his sleeve. This doesn’t happen to a person who has played his cards well, and I think there’s much more to this. It’s very strange to see someone go down so badly.

As much as he’s probably pissed off the Greek people by agreeing to such a rancid deal, the idea could be to get sympathy from the rest of the world. You simply do not humiliate a country like this, not in peacetime negotiations. If the sympathy card works, then belligerence will be forthcoming within a day or two, and Tsipras will show a different face in a while.

Think about it: what has emerged is that the Eurozone wants to permanently cripple Greece. This much is obvious. And if that is clear, then the only way to get out of this situation is to say: “I wanted to see what they really wanted from us. We are going to exit, because even half of this is unacceptable to us”. However, this is looking increasingly unlikely.

The situations that might happen:

  • Greece sees a revolt either within Syriza or with the people, and the government resigns rather than sign such a deal. The resulting situation will be to have a temporary government whose composition will determine if it will sign anything or not.
  • Tsipras is able to convince the rest of Syriza and Greece that this is indeed the best thing to happen, and the deal is done. Then in a few weeks and months, we see little tiny revolts all along the way and Greek keeps falling into a situation where eventually this whole deal collapses anyhow.
  • Tsipras revolts against Europe and says Grexit anyhow. Big drama happens but over the next few months things smoothen out.

There is literally no case for steady growth for the country. The debt is unsustainable so nothing will change anything unless there is a debt reduction – and that will happen, whether forcibly or voluntarily. The question is when: and they’ve kicked the can down the road for four years already.

We see this as a terrible precedent for international relations. Yes, there has been a deal, but it is so one sided, that we are fairly sure residents in Portugal, Spain, Ireland and Italy will be horrified that this could happen to them. Germany is probably betting that public memory is short, and it might just turn out that it is not.

  • DJ says:

    “we are fairly sure residents in Portugal, Spain, Ireland and Italy will be horrified that this could happen to them. ”
    That is precisely the point. If countries can get away like Greece, then everybody will be like Greece all the time!! Ok, yes, a common currency has problems, but not if similar economic policies are followed in every country to make them close to each other in terms of competitiveness. So, while the monetary union is flawed, a lot of blame also goes to the politicians of the periphery countries for not making their economy competitive with Germany when times were good.
    I heard a few speeches of EZ politicians and they were trying to indicate as much that they would like to respect the Greek mandate but they have been taken for a ride by various Greek governments who have pushed the bar too much… that is what the EZ leaders are angry about (atleast in their speeches). I guess they want to draw a line here, they have been promised reforms for much too long by the Greek politicians. And, they pointed out that various steps if taken earlier would have benefited the Greek people by now. Whether with the drachma or the Euro, ultimately an economy will do well only with good economic policies.
    So, I’m not sure it if is a terrible precedent. If this makes Spain/Portugal politicians enact policies to improve competitiveness (out of fear or whatever) then its a good outcome for the people. Its not like the rest of the Eurozone has the wherewithal to help Greece beyond a point anyway!

    • DJ says:

      Many of those reforms are political and privatization, etc could bring in more money. So, that list doesn’t sound as bad.
      They all sound reasonable. Only problem is if done all together it is likely to be contractionary, but then where do you draw the line if the Greek politicians have spent the last decade not doing this until now, even though (I would assume) these must have been discussed previously many times.