But let’s start with the positives. For the first time since the Greek bailouts began in May 2010, the government in Athens will be able to define its own reform programme rather than simply be given a check list of things it needs to do by the troika. Of course these reforms will have to be fiscally sound and SYRIZA will have to shelve some of its pre-election pledges but in terms of symbolism it is refreshing for a Greek government to be responsible for designing its own policy programme.
Another significant concession obtained by Finance Minister Yanis Varoufakis is that Greece’s primary surplus target for this year (3 percent of GDP) will be adjusted downwards in agreement with the Eurogroup. This also applies to next year, when the target has been set at 4.5 percent of GDP, and the years after that. It is clear to anyone who has been following Greece and knows of the myriad challenges facing the Greek economy that it is virtually impossible to achieve the levels of growth that would secure such large primary surpluses. A lowering of the targets provides the new government with the “fiscal space” it desire to ease the pressure on the economy and launch some of its social programmes aimed at tackling the impact of the crisis, which has been woefully overlooked by previous governments and their eurozone partners.
Beyond that, the agreement keeps Greece trapped in a very restrictive framework. It will have to make progress in a whole range of reforms to keep its lenders happy over the next few months at the same time as there will be scepticism within the government about the heavy involvement of the European institutions and the International Monetary Fund, known as the troika until now. This excruciating process of proposal, deliberation, implementation and then review is something that previous governments became familiar with but will be a completely new and testing experience for the current coalition.
Most importantly, though, there is no pledge from the Eurogroup to release any of the 7.2 billion euros in outstanding loans until a review has been completed. Eurozone finance ministers decided that this should be by the end of April. The problem for Greece is that this leaves the government extremely short of money in the meantime. Cash reserves are already running extremely low, tax revenues were 1 billion euros short in January following the recent political uncertainty and there is a repayment to make to the IMF in March.
This means there will be immense pressure on Varoufakis over the next few weeks to ensure Greece can meet its financial commitments.
At the same time, possibly as much as 20 billion euros has been withdrawn from Greek banks since December, leaving the financial sector particularly vulnerable. In this environment, any impasse with lenders over the next few months could prove fatal for the new Greek government and the country. If they manage to negotiate this obstacle course by the end of June, there is the question of what the next step will be.
Will the Eurogroup at that point agree to some form of debt relief? Will Greece need further loans? Will the eurozone demand more terms? Will these be politically or economic feasible? Friday’s agreement buys a little time but the uncertainty will only build up over the next few months.
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