Greece’s self-proclaimed libertarian-Marxist Finance Minister, Yanis Varoufakis, dons a not-so-austere scarf for his meeting... Photo by Jasper Junien/Bloomberg via Getty Images.
After yet another week of stalemates, ripped-up agreements and live-blogging, Greece and its creditors reached a deal to keep Greece and its banks funded (and Greece in the eurozone) through June. Yes, they kicked the can! This isn’t some whopping positive for stocks, but it should help ease “Grexit” dread and boost overall sentiment.
For those of you who missed the week’s theatrics, here is the play-by-play:
Monday: Greek Finance Minister Yanis Varoufakis writes a New York Times op-ed warning: “The lines that we have presented as red will not be crossed. Otherwise, they would not be truly red, but merely a bluff. … The ‘extend and pretend’ game that began after Greece’s public debt became unserviceable in 2010 will end.” Hours later, Varoufakis walked out on talks with eurozone finance ministers, calling their proposed deal “absurd.”
Tuesday: Greek Prime Minister Alexis Tsipras defends the walk-out, telling Parliament, “We will not accept psychological blackmail.” Varoufakis decides he needs a break and catches a production of Samuel Beckett’s Happy Days at the Greek National Theatre.
Wednesday: Greece blinks, says it will request a bailout extension. On Thursday.
Thursday: Greece submits its written proposal for a six-month loan in exchange for promises to run a 1.5% of GDP primary surplus and resist “unilateral actions.” France and European Commission President Jean-Claude Juncker back it. Germany denounces it as a “Trojan horse” to get back-door funding on its own terms. But wait! Hours later, Tsipras and German Chancellor Angela Merkel have a long, “constructive” chat! Oh, and Varoufakis tells Twitter followers Happy Days was “splendid.”
Friday: German newswires report Greece sent Germany the wrong proposal Thursday and really meant to surrender to creditors’ demands. Varoufakis says that’s crazytalk. MarketMinder editors coin the phrase, “WrongLettergate.”[i] Meanwhile, Malta’s Finance Minister says EU leaders are ready to let Greece leave the euro. EU leaders say that’s crazytalk. Reporter makes amusing drachma/drama pun.[ii] Germany decides Greece’s offer was a “good signal” instead of a Trojan horse. Merkel and French President François Hollande have lunch together, tell reporters Greece still needs to get its act together. Other Finance Ministers give pessimistic interviews. Intense meeting begins. Greek official says they reached a deal. Greek government spokesman says that’s crazytalk. A few dozen more rumors leak. Austria’s Finance Minister confirms they reached a deal. Eurogroup chief Jeroen Dijsselbloem makes it official with a press conference.
As for the deal itself, it basically extends the status quo and was quickly branded as a Greek surrender. Except by Greek officials, who boasted they “avoided recessionary measures.” Greece gets a four-month loan extension instead of six—probably a better outcome, considering European leaders’ tendency to take the entire month of August off. Really, who wants Greece’s loans to expire while all the other bigwigs are lounging on some Mediterranean beach and out of cell range? So, four months of funding for Greece, and four months of EFSF funding for Greek banks—a big relief, considering deposits are stampeding out. In return, Greece committed to run a primary budget surplus, write a list of proposed reforms by Monday, review them with the troika[iii], rewrite them if necessary, and get them rubberstamped by April. Reforms will reportedly center on corruption, tax evasion and streamlining Greece’s inefficient public sector. And, based on references to addressing a “humanitarian crisis,” we assume include some pro-growth measures. But reforms must also be “based on the current arrangement” between Greece and creditors, which implies Athens must see through all the prior government’s commitments. Including, we presume, the ones they campaigned against.[iv]
So what happens next? Exactly what we’ve seen for four-plus years now. Greek aid will be subject to troika review and approval, so we’ll see plenty of arguing and stonewalling. Four months from now, we’ll probably see more bickering and brinksmanship over longer-term funding. Tsipras and Varoufakis will have to return to Athens and try to convince voters they didn’t just reneg on all the campaign plans that got them elected. In other words, this is the same old “extend and pretend” game Varoufakis denounced Monday.
But hey, it keeps Greece in the eurozone. It keeps Greek banks from going belly-up. It extends a status quo that has been just fine for stocks. And maybe it gives investors one less thing to fret for a while.
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[i] We did it verbally. You’ll just have to take our word for it.
[ii] “Good morning. Another day, another drachma. Oh, forgive me. Getting a little ahead of myself there.” Mehreen Khan, The Telegraph, “Greece Live Blog,” 8:45AM (GMT) post.
[iii] The ECB, European Commission and IMF—aka the same troika Tsipras and Varoufakis said was basically dead to them three weeks ago. But really, don’t call it a U-turn.
[iv] Then again, at his post-game press conference, Varoufakis announced the rehiring of 2100 public sector workers.