Greeks rejected a proposed deal that their government had put to a referendum rather than accept. The same government is now agreeing to negotiate an agreement that will bring even more austerity and harsher conditions.
While over 60 percent of Greeks voted NO to acceptance of a plan proposed by creditors that would have continued and even increased austerity measures imposed as part of the previous bailout loan, the NO voters have in effect lost. The Greek government is returning to negotiate but has already erased the two red lines remaining in their former negotiating stance and acceded to the demands of creditors that the Finance Minister Yanis Varoufakis resign.There is one possible bright spot in negotiations — the issue of a partial debt write-off is being pushed by the IMF, although this would come at the cost of further cost reductions such as pension cuts. Christine Lagarde, head of the IM,F said Greece needs to continue cost-cutting reforms:The finance minister, Yanis Varoufakis, had announced that if the YES vote was successful he would resign. The NO vote triumphed by a large margin showing that the majority of Greeks supported Varoufakis' position that Greece simply could not be forced to suffer even more austerity. Instead of working with others to put pressure on creditors for a better deal, what does he do? He resigns. Even in his resignation statement, it is clear that his resignation is acceding to creditors' demands:The irony to this is that Varoufakis has not been meeting with the creditor groups since late April. The new finance minister Euclid Taskalatos has been in charge since then and Varoufakis only remained behind the scenes. The fellow that was involved until the very last and rejected the final offer along with Tsipras was Taskalatos. Nevertheless even though the move is mostly symbolic, the Greek government must show its willingness to accede to creditor demands, a position that the Greek populace had just rejected.Instead of keeping its red lines on pension reform and taxes, a letter from the Greek government to the European Stability Mechanism is requesting a three-year loan explicitly promises that it will meet demands by creditors for reforms in those key areas:The letter does say the Greek government will implement a set of measures related to tax reform and pension related measures. However, it gives no details at all. We should know tomorrow if the measures measure up to creditor demands . They have not in the past. These measures are to be implemented as early as next week. At least the letter promises the Greek government must produce specific reforms by tomorrow:There are no doubt splits between creditor groups. It may very well be that a majority of creditors have already decided that there will be no more loans and that their own Plan B for a Grexit should start to unfold. This at least would be more in keeping with the NO vote even though it will impose even more suffering on the Greeks over the shorter term.
"The other leg is debt restructuring, which we believe is needed in the particular case of Greece for it to have debt sustainability. That analysis has not changed. It well may be that numbers may have to be revisited but our analysis has not changed."It is not clear if other creditors will agree to this. It will be politically unpopular in many EU countries to have debt owing to their treasuries by Greece to be written down. Some countries may be even pressing for creditors to force a Grexit on Greece rather than providing Greece any more loans at all. Yet Greek negotiators are still taking the position that they will do whatever is necessary to reach a deal. Immediately after the NO vote this was evident.
Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum.So the first thing that Tsipras does with his new mandate is give in to a suggestion that Varoufakis, who sometimes annoys officials on the other side, must resign.
The Greek government promised on Wednesday it would start pension and tax reforms next week, as demanded by creditors, in return for a three-year loan to drag its financial system back from the brink of collapse.The complete letter can be found here. It was signed by Euclid Tsakalotos, the new finance minister.
The Greek government will on Thursday 9 July at the latest set out in detail its proposals for a comprehensive and specific reform agenda for assessment by the three Institutions to be presented to the Euro Group.The letter is a masterful construction that brings up the issue of shaving down debt while promising to meet all its financial obligations:
As part of broader discussions to be held, Greece welcomes an opportunity to explore potential measures to be taken so that its official sector related debt becomes both sustainable and viable over the long term.Greece is committed to honor its financial obligations to all of its creditors in a full and timely manner.There is not even the slightest hint of any threat to leave the euro zone should the government be required to erase their red lines and also sell out their own citizens.We reiterate the Greece's commitment to remain a member of the Eurozone and to respect the rules and regulations as a member state.