Greece’s Bailout Package III: Revenge of the Creditors

Those commenting on the deal that had just been signed called it a “deliberate humiliation” for Greece and they talked about “mental waterboarding” during the negotiations. @OwenCallan, quoted by the Guardian, concluded: “I always figured the Creditors wd slap Greece around before offering a deal. Didn’t see them beating them over the head w/ a baseball bat.”

The front page of the Guardian is also pretty spot-on: “Europe takes revenge on Tsipras”.

The deal, including the two points which took the longest to negotiate, were described as draconian. The points were:

1) A seize of 50billion euros of Greek public assets, and holding it as collateral in a fund in Luxembourg. The fund would be controlled by KwF, the German development bank, whose chairman, as it was later revealed to everyone’s dismay, is Wolfgang Schäuble, the German Finance Minister.

2) IMF’s involvement in the bailout, as Greece was keen to have much less IMF involvement in the package.

Now, roughly 30 minutes after the press conference, it seems like the IMF will be involved in the package and the fund will be set up, but in Athens not in Luxembourg. All this on top of a number of other demands and austerity measures. It doesn’t seem like Greece has a spare 50bn euros lying around, and funds from the privatisations which they have to carry out are estimated at 17bn euros.

I don’t understand how this is the deal that ends up being signed (though let’s not forget, it still has to be approved by the Greek parliament.)

Roughly a week ago a referendum in Greece rejected a lighter version of these demands. Admittedly, I didn’t think that the referendum was about the will of the people – it was Syriza’s strategic move designed to help them negotiate a better deal or wash their hands off responsibility. It wasn’t polite or admirable of Tsipras to call the referendum in the first place. But it sure isn’t polite or admirable to take revenge on the Greeks in the form of such a harsh deal. The creditors’ ignorance of the outcome of the referendum, not to mention the outcome of elections which elected the anti-austerity Syriza in the first place, is kind of a blow in democracy’s face.

Christine Lagarde has just called the outcome “a good step to rebuild confidence”. The confidence of the creditors – maybe. The confidence of the people of Europe that European officials are there to serve them – not so much.

The only reasonable explanation is that Tsipras’ plan blew up in his face, and he found himself cornered not having prepared for a potential Grexit and not having prepared a parallel currency. Just like Krugman, I hope to find out that this is not true, because that would be surprisingly reckless given the situation.

Update: I quite enjoyed Piketty’s interview with Die Zeit. Emotionally and rationally he seems to stand where I stand on the Greece issue (not on everything though). He’s a Europhile but thinks that what is happening right now may not be the way forward.

Update 2: It looks like Greece did make preliminary plans to introduce a parallel currency in the event they do not receive the bailout. Tsipras’ insistence on reaching a deal still baffles me, then.

Greece’s Bailout Package III: Revenge of the Creditors

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