Syriza throws in the towel and stocks soar as deal on Greek bailout reached

Brussels - Even the proposals presented earlier that Germany rejected were a sell out of most of the campaign promises made by Syriza including the demand for writing off some debt and for a new agreement rather than an extension of the existing bailout.

The new agreement makes it even clearer that Syriza is definitely committed to repudiating those promises, but goes much further. During the four-month extension period of the present bailout, Greece will be subject to exactly the same austerity conditions that were agreed to in the original memorandum of agreement(MofA). The sellout set forth in the original Greek proposals did not satisfy Germany, which wanted even more ironclad guarantees that Greece would keep to the original terms of the agreement. In return Greece managed to convince the EU finance ministers that its target surplus should be tied to its economic situation in 2015. Germany wanted not just a Greek sellout but a super sellout, and got it. The full text of the agreement can be found here. 

 In this article I will analyze specific parts of the deal that show how Syriza has repudiated its campaign promises and agreed to do nothing that would be inconsistent with what the Eurogroup or even the old Troika think is inconsistent with obligations in the original bailout agreement. 

The agreement notes that the extension of the loan(MFFA) is within the framework of the existing arrangement. There is no new deal. The old bailout is back with a vengeance. So is the review "on the basis of conditions in the current arrangement": The Eurogroup notes, in the framework of the existing arrangement, the request from the Greek authorities for an extension of the Master Financial Assistance Facility Agreement (MFFA), which is underpinned by a set of commitments. The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions.  

 The Greek government must present a list of reform measures "based on the current arrangement." This means "reforms" consistent with the austerity policies that are part of the current arrangement. Syriza can forget about raising wages, rehiring workers, or any roll back of privatization. There may be some reform measures the Greek government could provide agreeable to the Eurogroup such as improving tax collection that would be consistent with campaign promises but certainly most of the reforms Syriza supported would be opposed to the "current arrangements". The document goes on: The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review. This list will be further specified and then agreed with the institutions by the end of April. This is a huge semantic victory. Instead of the Troika we now have " the institutions." Under the "current arrangements" the Troika are the "institutions." This renaming goes on throughout the document: Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF programme and the transfer of the 2014 SMP profits. Both are again subject to approval by the Eurogroup. The Troika(institutions) must approve of the conclusions of the review to ascertain whether Greece is meeting the conditions of the bailout. The Eurogroup must also approve.

 The Syriza government faces many hoops to jump through before it gets any money. If it fails to adequately pursue the very austerity policies it campaigned against, it will not get a cent. Contrast what the Greek government agreed to with what Finance Minister Varoufakis said at the end of January: Varoufakis said Greece had no intention of cooperating with a mission from the lending "troika" of the European Union, European Central Bank and International Monetary Fund, which had been due to return to Athens. He said Greece would not seek an extension to a Feb. 28 deadline with euro zone lenders. 

 Now as part of the deal to get a loan, the government commits itself to working again with all three but consistent with the tacit agreement not to call a spade a spade, the Troika are no longer mentioned: In this light, we welcome the commitment by the Greek authorities to work in close agreement with European and international institutions and partners. Against this background we recall the independence of the European Central Bank. We also agreed that the IMF would continue to play its role.  

Although Syriza and Finance Minister Varoufakis several times indicated that they would honour their financial obligations rather than seek a debt write off, the document emphasizes the point: The Greek authorities reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and timely. During the four-month extension of the loan, the Greek government cannot hope to enact any policies that the "institutions" think would negatively impact what they see as the policies and structural reforms in the original bail out agreement. Forget trying to roll back austerity policies, privatizations, or layoffs:The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions. 

 Varoufakis promised that he would do whatever was necessary to forge a deal that would keep Greece in the euro zone. His government kept that promise. Keeping it pleased the stock markets with the Dow reaching new highs after the announcement of the deal. The crisis is not over yet however. You might say the deal has kicked the crisis can down the road four months. The deal runs out just before a number of Greek debt repayments are due. Syriza will then play Super Sellout Part II. 

There is a slim chance that Syriza might have a surprise Monday. It could present as reforms all the policies it campaigned on. The Eurogroup would be outraged and the stage would be set for a Grexit. That is what Greece should have done long ago but there is no sign of any planning for that step by the Syriza government.