Out of Maneuvering Room

When Alexis Tsipras walked into the meeting with the remaining 18 Eurozone leaders at the weekend break, he may have had in mind, not a line from Greek antiquity, but perhaps one from the Italian middle ages. Dante Alighieri’s version of heck had a simple message at its gate: “Abandon all hope, ye who enter right here.” It was a very difficult, and very long, meeting for Tsipras, however my first impression is that he managed the best he could under extremely difficult conditions.

For a start, the Greek prime minister had to explain to Eurozone leaders why he was pressing for an economic agreement, which, at the end of the day, had been extremely rejected in a referendum by his own people. This raised a substantial issue of trust as well as credibility. Despite Tsipras having won Ancient greek parliamentary support (251 out of 300 Greek MP’s gave him the actual “green light” to strike a deal; perhaps any deal that will keep Greece in the euro) was he trustworthy to implement what was about to be agreed?

Staring into the abyss

In fact, Tsipras had very little room for manoeuvre. Greek banks have been closed because late June, capital regulates are firmly in place, and cash reserves available at Greek banking institutions are at an all-time low close to €500m (only 0.5% of the €120 billion deposits of Greek citizens “sitting” in Greek banking institutions, which, due to capital controls, Greeks cannot withdraw). Tsipras knew that, without a deal, Greek banks would definitely collapse. To make issues worse, Greece had already defaulted on an IMF debt repayment of €1.6 million.

To add further to the crisis, Greece needs to make a €455m financial debt repayment to the IMF today along with a further €3.5 billion debt repayment to the ECB within seven days. The implication of all this is that Tsipras desperately needed a contract to enable the ECB to inject additional Emergency Liquidity Help (ELA) to Greek banks to aid their cash buffer and conserve them from collapse. Also, he needed to secure a “link loan” from the institutions to pay back both ECB and the IMF.

Getting it done

Details of the arrangement are still emerging so I will discuss briefly some of these the way I comprehend them:

Firstly, Greece needs to pass, within the next 48 hours, through the Ancient greek parliament (possibly as one parliamentary bill) privatisations and a number of structural reforms to which the current government had thus far objected. This is supposed to be some type of “goodwill” gesture to Greece’s partners in order for “Troika” money to start flowing in to the country. This is a very big challenge for the SYRIZA-ANEL government and it is very likely to prove hugely damaging for which was always an unusual coalition. It is also a big challenge for a number of SYRIZA MPs (including energy minister Panagiotis Lafazanis) who prefer a return to the drachma rather than an austerity-oriented deal with the Institutions.

Tsipras will have to move the parliamentary bill with the help of the pro-European parties (ND, Pasok, Potami) at the same time while trying to reshuffle his government by depending (again) on pro-European parties. The bill may pass, but the government’utes days may be numbered.

Further – as well as contrary to the will of Tsipras –, it seems that the International Monetary Fund (IMF) will stay firmly into the picture as Greece’s lender. Tsipras (and the colleagues) have consistently compared IMF involvement because it is an outsider to European matters. The paradox of the matter, of course, is the fact that debt relief, which Tsipras has been requesting, has been repeatedly promoted through the IMF. After all, the IMF emphatically admitted (only three days prior to the referendum) which Greek debt is unsustainable.

Greece’s debt currently stands around 178% of its GDP. Eurozone leaders possess repeatedly rejected any concept of a haircut in the face worth of Greek debt. The current agreement opens the door, however, for debt relief by pushing (subject to Greece continuing with privatisations and structural changes) its average debt maturation, currently at 16.Five years further into the future.

This, on its own, will be a significant debt relief, which Tsipras can sell to his individuals. In math, the Euclidean formula has been used for reducing fragments to their simplest form. Tsipras – with the instrumental help of his courteous and down-to-earth finance minister Euclid Tsakalotos – can claim that, subject to passing the actual parliamentary bill through the Greek parliament as well as reshuffling his government into a practical and operational group, he’s actually pulled off a trick, which will reduce the Greek debt-to-GDP ratio to its simplest sustainable form.

With hopes low, Tsipras may have just done the best deal possible for Greece is republished with permission in the Conversation