The sensible solution to the country’s latest predicament is for a compromise to be reached between the government and the country’s partners and creditors. Europe is known for coming up with solutions, even at the very last minute, and has its own way of easing tensions and differences. In Greece’s case, however, it will take some time and this will come at a high cost for the country’s real economy.
Both sides have already started making compromises. Alexis Tsipras and Yanis Varoufakis have made three important concessions: They removed the threat that Greece might not repay maturing European Central Bank bonds and International Monetary Fund loans, accepted the idea of primary surpluses (with lower targets), and moved away from the notion of a debt haircut. It seems that the other side will agree to develop a modified monitoring mechanism, which will not be called “the troika,” and discuss solutions for debt restructuring. But that is as far as it goes, for the time being.
The message coming from Berlin and Brussels is that in order for a final compromise to be reached, rules already set out must be kept, basic reforms must not be abolished, and Tsipras will have to agree to a few extra ones which will not be welcomed by his party. In other words, we will reach a point when Varoufakis will go to the Maximos Mansion and say: “This is the package I’ve secured, without the troika and with debt relief. However, they are asking us to do the following things… Can we?”
The government has invested a lot in the fight against corruption and vested interests. Such pledges find a sympathetic ear abroad, particularly in Berlin and at the IMF.
The problem is, first, that foreign officials have heard such pledges before and, second, they are well aware that even if Greece’s collecting and monitoring mechanisms were to come under German Finance Minister Wolfgang Schaeuble’s control, he would still need several months, if not years, before he could yield results.
Furthermore, because our lenders have the habit of super-analyzing every ambitious Greek pledge, if a government program foresaw a crackdown on corruption producing 6 billion euros in revenues, foreign officials would still divide that figure by 10.
In any case, the good news is that European officials are willing to listen up, give time, and have not threatened to cut liquidity. Everyone is keen to show that they respect the new government with its fresh mandate. The socialists, especially, wish to show that they are doing their best to help Tsipras, however stressing that “we have told him that he must follow the rules.” But the formalities and grace period won’t last forever, and when they do come to an end it will most likely be behind the closed doors of the Eurogroup meeting.