An article by Spyros Lapatsioras,[1] John Milios[2] and Dimitris P. Sotiropoulos[3]

 “One must know how to employ the kairos of one’s forces at the right moment. It is easy to only lose a little, if one always keeps foremost in the mind the idea that unity is never the trick, but the game.” [4]

1. Introduction

The transitional “bridge Agreement” of the 20th of February is a truce intended by the Greek government and welcomed by the other side (the European “institutions”). Within the truce period (the next four months), the conditions for negotiating the next agreement will be shaped. This could mean that everything is still open. However, that is not true for two reasons. First, the very transitional agreement changes the balance of power. Second, the “hostilities” will continue in the course of the next four months (i.e. the review of the commitments and the re-interpretation of the terms by each party).

2. The agreement of the 20th February: A first step on slippery ground… 

2.1 Negotiation targets

In the first substantive phase of negotiations at the Eurogroup of the 12th February, the Greek government sought an agreement on a new “bridge program” stating that it would be impossible to extend the existing program on the grounds that it has been rejected by the Greek people:

1. The “bridge program” would not involve conditions, reviews and so on, but should be an official manifestation of the willingness of all parties to negotiate without pressure and blackmail and without any unilateral action.
2. In the above context, Greece would forgo the remaining installments of the previous program, with the exception of the return of the 1.9 billion euros that the ECB and the rest of Eurozone’s national central banks gained from the holding Greek bonds (programs SMP and ANFA). Greek authorities could issue treasury bills beyond the limit of 15 billion euros to cover any liquidity emergencies.
3. At the end of this transitional period: (a) Greece would submit its final proposals, which according to the program of the government would include a new fiscal framework for the next 3-4 years and a new national plan for reforms; (b) the issue of a sovereign debt restructuring-reduction would come to the negotiating table.

The German government and the “institutions” (EU, ECB, IMF) came to the negotiations with the position that Greece had to request a six-month “technical extension” of the existing program – renamed as the “existing arrangement” – to enable its successful completion. 

2.2 The outcome of the negotiation

The agreement of the 20th of February includes a four-month extension of the “Master Financial Assistance Facility Agreement (MFFA), which is underpinned by a set of commitments.” The extension of the Agreement (“which is underpinned by a set of commitments”) means: (a) evaluations by the three “institutions,” (b) commitments and conditions, (c) scheduled installments as they appear in the previous Program, subject to a positive evaluation, (d) return of the profits from holding Greek bonds by the ECB and national CBs, but subject to a positive evaluation by the “institutions” (even given the “independence” of the ECB).

In short there is a rejection-withdrawal of the Greek government’s negotiation targets (1) and (2). In addition, there is no explicit reference to how the government will cover its short term financing needs (e.g. issuing treasury bills to cover bond redemptions, interest payments and other possible emergencies) until the completion of the assessment. In this regard, the reference to the independence of the ECB may imply its “discretion” in assessing the extent to which the Greek government responds positively to the “commitments” that accompany the extension of the agreement (something which undoubtedly will complicate any “interpretative” attempts in relation to the agreement on the part of Greek government).

At the same time, the February 20 Agreement includes the statement: “The Greek authorities have also committed to ensure the appropriate primary fiscal surpluses or financing proceeds required to guarantee debt sustainability in line with the November 2012 Eurogroup statement.” This means that the Greek government refrains from the target of debt restructuring-reduction and adopts the sustainability plan based on debt repayment mostly through primary surpluses. This implies the rollback from point (3b) of its initial negotiating package.

What the Greek government has won (aside from the mere change in terminology, about which there was intense debate) is:

• A. Part (a) of section (3) of its initial suggestions, namely the right to propose reforms to the “institutions” for approval with regard to fiscal consolidation and growth. The policy measures agreed by the previous government (reduction of pensions and increase of VAT in the islands) were thus taken out. Both sides agreed to give particular emphasis to the “overdue” fight against corruption and tax evasion, public sector efficiency, improving the tax system, etc.[5]
• B. Further negotiations on the size of the primary surplus for 2015. Instead of the previously agreed 3% of GDP, the new agreement leaves open the issue of a lower primary surplus for 2015: “The institutions will, for the 2015 primary surplus target, take the economic circumstances in 2015 into account.”

It is clear that the new agreement is a truce, but truce is by no means a tie. The agreement is a first step on slippery ground. The Greek government may have gained time, but the political landscape seems quite tough, having minor similarities with the initial minimum negotiation targets set by the Greek side on the 12th February.

Read Post →