On the Greek Debt Interim Agreement

Last Friday, February 20, Greece’s Syriza government agreed to a four month extension of the current debt package that has been in effect since Greece’s last debt renegotiation in 2012, thus agreeing to the main demand of the Troika that it do so as a condition for further negotiations. Some have read this as a ‘sell-out’ by Syriza of its election promises to reject the austerity measures the Troika established in 2010 and 2012, which have kept Greece in a condition of perpetual economic depression for the past half decade. By agreeing to continue current debt arrangements for another four months, critics say Syriza has also reneged on its promise to reject the Troika’s previous debt deal.  The same critics argue that Syriza should have simply declared ‘no’ to extending both the current debt package and related austerity measures by the February 28 expiration date. And if the Troika didn’t like it, so be it; Greece should just leave the Euro currency zone.

But these criticisms and the alternative recommendation to just leave the Eurozone are premature and ill-conceived. And the alternative of leaving the Euro by the February 28th expiration date (or soon after) would have been a disaster for Syriza and Greece, both economically and politically.  By agreeing to a very temporary four month extension, Syriza has tactically made the smart move.  Here’s why.

From the very beginning the Troika’s primary objective has been to extend the current debt and austerity terms ‘as is’, i.e. in perpetuity. That would mean leaving Greece in depression in perpetuity, and having to revisit and renegotiate Greece’s massive debt load of $270 billion (more than its annual GDP) repeatedly every few years, resulting in the piling of still more debt on existing debt and requiring even more austerity.

Even if the Troika’s representatives know this arrangement is unsustainable in the long run, which many no doubt do know and some have publicly even expressed so, they had little choice but to have continued to do so by the February 28th deadline date of the old agreement.  With the Eurozone economy in deep trouble, with its widespread economic stagnation, its continuing slide into deflation, the still massive debt owed by its other periphery economies, the rising populist parties on the right and left, growing negative effects on it created by US-induced sanctions on Russia, and the prospect of a bottomless black hole of debt and bailouts in the commitments it has made to lend money to the Ukraine—unilateral reductions in prior Greek debt at a single stroke by the Troika are not a prospect the Troika could even begin to publicly consider by February 28 or even any date in the foreseeable future.

The Troika’s Cliff

The Troika would have instead allowed the Eurozone to ‘go over the cliff’ after February 28 and let Greece leave the Eurozone, thus dragging Greece over the cliff with it had Greece rejected an extension outright and left the Euro on March 1.

February 28 was simply not enough time for the complex bureaucratic political and banking interests behind the Troika to agree to anything representing fundamental change in Greece’s debt and austerity measures. Nor was it enough time for Greece itself to prepare for the worse—i.e. an exit—or to develop a more effective strategy in confronting the Troika by seeking allies and support within the Eurozone and within the global community as well.  The timing was not right. Principles are important in negotiations; but so is strategy and timing. And declaring an end to debt payments, to austerity in general, and exiting the Euro in turn would have been committing a fundamental error of confusing a tactic (leaving the Euro) with a strategy (ending austerity).

Had Greece left the Euro, the economic effects of that precipitous move were already becoming apparent: capital flight out of Greece was already accelerating, pressures for a run on Greek banks within days were growing, rates on Greek debt were escalating rapidly, and prospects of runaway inflation rising.  All the above would have intensified post February 28th.   Unknown political consequences would undoubtedly have arisen.  It’s not unlikely that the USA and Europe would have unleashed their NGOs and other forces of political destabilization, which we have seen in recent years has become a standard practice everywhere, to effect a political crisis and regime change in Greece. It is well-known that USA Treasury Secretary, Jack Lew, in the week preceding February 20 made direct personal calls to Syriza. No doubt veiled threats, economic and political, were made on behalf of the USA’s banker-political allies in the Troika.  These are realities Syriza no doubt had to consider, along with the obvious severe economic impacts of a precipitous and ill-prepared decision to exit the Euro on February 28. The economic crisis would have meant a much worse immediate economic environment for the Greek people, at least in the short run.

Greece’s choice was: precipitate a crisis on February 28 by declaring an exit from the Euro, without having prepared effectively politically and economically for the exit in the brief time it has had to do so; or get whatever minimal concessions it can from the Troika on February 28th, agree to what it must temporarily agree to for the shortest possible period, and buy time—to properly prepare for a possible Euro exit and line up alternative sources of credit should the worst occur, to prepare the public for the consequences, see what ‘splits’ can be wedged in the Troika opposition (which had begun to appear) during the negotiations over the four month extension period, and, in the interim of the four months, maneuver to implement whatever initial rollbacks of austerity might be possible as a first step toward a more aggressive later program.

Whose United Front?

With regard to the question of Greece possibly leveraging potential differences within the Eurozone, during February some Euro ‘soft-liners’ had already floated the idea of allowing Greece to swap old bond debt for what is called ‘GDP or growth bonds’. In the latter, debt payments would only be made if Greece grew economically in real terms.  If no growth, then no debt payments, and suspension of debt payments technically means more funds to reduce austerity.

Of course, all that needs still to be negotiated, and the ‘hardliners’—Germany, its central bank allies, the IMF, were opposed to such debt payment adjustments. They know a bond debt swap agreement opens the door to negotiations on some austerity suspensions since it reduces the debt repayments. It is perhaps notable that the Eurozone Commission, and a number of Euro country finance ministers are not as hardline as the German central bankers, IMF and ECB, who had gained the upper hand within the Eurozone in the closing weeks of February.

But as they continued their hardline opposition, within the Eurozone other’ softliners’ were  suggesting other ideas aside from ‘GDP bond debt swaps’ designed also to lower debt payments by extending the loans by decades, to 50 years, or even in perpetuity.  That too would lower annual debt payments and take some pressure off of austerity in the short run. And others were suggesting converting the bonds’ current principal and interest payments to interest payments only, with the same potential result.  So there is no united front within the Eurozone.  But precipitating a final clash with the hardliners on February 28 would not have given Greece the opportunity to explore leverage in negotiations with the softliners. Extending the agreement for another four months provides that option at least, even if it is not guaranteed to produce results favorable to Greece.

Minimizing or somehow postponing debt payments by any of the above adjustments raises the possibility for austerity roll backs. Opening the door wider to enable even more rollbacks is also potentially possible if Greece can negotiate a reduction in the stringent national budget surplus now dictated by the current agreement.

With regard to this latter point, several Eurozone countries and their current centrist social democratic parties, specifically France and Italy, have been themselves campaigning for a reduction in their annual budget surplus targets their previous even more pro-banker governments had agreed to.  That surplus, of 3% to 4% or so, in effect meant France-Italy would have to cut government spending at a time, today, during which their economies are stagnating or in recession. Both therefore want to increase government spending to generate more growth. But they recognize that is not possible without a reduction of their current budget surplus target. But if France and Italy prevail in reducing their target, then why not Greece? And why not Greece seek allies and support from France and Italy in a joint effort? Reducing Greece’s budget surplus target would, in effect, free up more government revenues to spend to reduce austerity—by hiring back government workers, not cutting or even restoring pensions, improving health care services, not having to privatize electricity services, and so on. .

Greece therefore needed time to ‘court the doves’ in the Eurozone centrist governments and to encourage allies willing to propose alternative measures that would reduce debt payments. That time would have been forfeited and lost if Greece had declared an exit on February 28 and/or not agreed to a four month extension.

Greece also needs time to line up possible supporters within the broader global community—both political and potentially economic support. In the meantime there is nothing to stop Greece from maneuvering with a scalpel to cut back ‘this or that’ austerity measure.  All these strategic opportunities would have been closed off to it if Greece had rushed to leave the Euro on February 28, declared it was not going to pay any debt any longer and discontinued all prior austerity measures overnight.

The trade-off before it on February 28 was economic chaos and potential severe political instability vs. the possibility to negotiate debt reduction based on one of the possibilities above and to roll back austerity, albeit in stages or phases rather than all at once overnight.

If the Troika’s number one demand has always been to extend the past agreement of debt terms and austerity ‘as is’, then Greece’s number one demand has been to roll back austerity.  The bargaining clash between the Troika and Greece leading up to February 20th was about which demand would be primary. Who’s agenda would drive negotiations. The Troika saw austerity as a necessary outcome of its primary objective of ensuring debt repayment; Greece sees debt repayment as the unnecessary requirement preventing its primary objective of austerity roll back.  For the Troika, it’s about continuing debt payments and then talking about austerity changes; for Greece, it’s negotiating austerity changes first and then adjusting debt payments to accommodate those changes.

Greece’s Debt Extension Acceptance Letter of February 23

So, post-February 28th, whose primary position is now at the top of the negotiating agenda? Has either side succeeded in firmly establishing its priority and now dominates the agenda? The answer is no.  Although only the outlines of the extension agreement are thus far available, it appears the letter Syriza sent on February 23 include the following:

First, the Troika got its ‘as is’ extension of current terms, its primary demand, but only for four months. After that, the current debt-austerity terms may well become null and void if no further, more permanent agreement is reached.  In the meantime, in its agreement letter to the Troika, Greece left hard numerical details purposely vague. It reportedly has two months to clarify the details.  In the meantime, Greece buys itself time. It can proceed with rolling back austerity measures, albeit more slowly and carefully, even though it may have agreed in writing in principle not to. What is the Troika going to do about it, if Greece leaves the extension vague, giving itself room to maneuver at home to continue to reduce austerity in the interim? Will the Troika throw Greece out of the Eurozone because it doesn’t like the lack of details? Break off negotiations? That would have repercussions, both economically and politically throughout the Eurozone and the Troika knows it. They’ll bluster and complain, posture in the media, they’ll threaten not to provide the bridge loans technically due Greece even under the old terms during the four month extension, but in the end they’ll continue negotiations nonetheless. They really have no other alternative.

In the meantime, Greece will focus on and point to its aggressive efforts to raise taxes, by cracking down on the wealthy tax evaders and tax collection corruption. It will cite these aggressive efforts called for in the agreement letter of February 23, as evidence it is proceeding to implement some of the terms of the extension.

Greece’s acceptance of the extension letter also indicates it will proceed with demanded government reforms to root out corruption, make government funding projects more transparent, and reduce the influence of Greece’s economic oligarchs who have shielded themselves politically the past five years from any austerity effects while the rest of the country has bore the burden of the same. That too will be held up as evidence of compliance.

Troika demands for labor market reforms—a program the Euro bureaucrats and bankers are pushing throughout the Eurozone—are tactically addressable by Syriza as well.  It can say it is refunding pensions from increasing tax collections on the wealthy that have been effectively avoiding them and by other administrative reforms.  It can point to hiring back government workers by reducing pay for top government bureaucrats and managers and by other plans to ‘streamline’ government which the Troika has demanded. It can raise the minimum wage and restore collective bargaining, noting these measures affect the private sector and don’t raise government spending; in fact, rising wages mean more tax payments and therefore more potential government surplus.

Greece’s February 23 letter apparently agrees not to roll back privatizations that have been already completed or ‘under way’. But the definition of the latter is not spelled out and those projects can be effectively placed on hold for at least four months or more. And it has not agreed to continue with further privatizations the Troika wants, such as the electricity system, a project that would certainly impact households and incomes. They will be reviewed on a ‘case by case’ basis, according to the letter. That means effectively, nothing to be done for another four months. In short, no rollbacks of past privatizations in exchange for a freeze on anything further.

In its letter Greece also indicates it will proceed with promises to reduce food costs, health care services and utility services for the poorest, which now constitute a large part of Greece’s households after five years of depression. It indicates the funding for these anti-austerity measures, which amount to around $2.15 billion, will be financed from other cost savings.

Notably, much of the social benefit and program measures will be financed not by budget cuts but by finding cost savings. That means provide the benefits and then look for ways to cut costs. That’s a dramatic departure from the Troika’s procedures of cut first and then adjust the benefit levels.

In the days following Greece’s acceptance letter, the hardliners within the Troika—Germany, its northern Europe central bankers faction, together with the IMF and ECB, have continued their hard line, insisting Greece provide more details in its letter.  In contrast, the European Commission and a number of finance ministers have assumed a different public line. As the European business weekly, the Financial Times, reported on February 25, “Officials at the third bailout monitor, the European Commission, said the reform list had improved on outlines discussed at the weekend and, unlike the IMF and ECB, gave it unequivocal support”. So is the IMF and ECB playing ‘hard cop’ while the EC the ‘soft cop’? Or is the fact that the EC’s $142 billion Greek debt is that which is being considered, whereas the IMF’s and ECB’s smaller debt is not even in question here?  Only time will tell. But the point is that Greece and Syriza have at least bought that time to find out, to prepare, and have in the meantime not really abandoned their primary goal of rolling back austerity—even if that goal’s attainment has been, of necessity, been slowed for a temporary four months.

Need for Continued Solidarity on the Left

Greece and Syriza have not ‘sold out’. To declare such is premature at best, and counterproductive politically at worst.  Greece has bought itself time—to prepare for the worse while it plans for the best possible compromise with its Eurobanker-Troika adversaries.  It has bought time to properly prepare for an exit if that ‘nuclear option’ becomes necessary. It has bought time to maneuver with potential sources of support within the opposition itself, and to line up global alternative economic and political support.  It simply did not have sufficient time in the few weeks between Syriza’s election and the February 28 deadline. Yes, Greece ‘blinked’ at the February 28 deadline. If it hadn’t what would have been the consequences, including for the Greek people, of a precipitous action?  The Troika, with its ‘eyes wide shut’, would have gone over the cliff and dragged Greece, and perhaps the entire Euro currency union, with it.  Greece and Syriza have thus, in effect, led it, the Troika, and the Eurozone itself, back from the precipice by agreeing to an extension—an extension that has not really tied its hands in maneuvering to reduce austerity and an extension that at least raises the possibility of ‘debt reduction by other means’ (swaps, surplus target reductions, etc.) going forward in the four months of negotiations ahead.

Syriza’s severe critics should therefore assess the situation as it is, using their heads, instead of just passionately declaring all is lost because they didn’t get everything they wanted immediately and overnight on February 28th. Negotiations are not over, they have just begun. And so has the fight. Meanwhile, it is too early to voluntarily and arbitrarily throw much needed solidarity overboard.  As workers know full well when their bargaining team goes into negotiations, you don’t declare sell out and split your ranks even before you’ve gone out on strike.  There’s ample time to better determine if that bargaining team’s doing its job. Right now, it looks like Syriza—Tsipras and Varoufakis—have made the right tactical decision on February 28.  Let’s see if they can now make the best strategic choices going forward as well.

Jack Rasmus is the author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, by Clarity Press, 2015, and the prior book’s, ‘Epic Recession: Prelude to Global Depression’, 2012, and ‘Obama’s Economy: Recovery for the Few’, 2012.  He has been a local union president, negotiator and representative for several American unions. His blogs at jackrasmus.com.


Jack Rasmus is author of  ’The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump, Clarity Press, January 2020. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions on the Progressive Radio Network on Fridays at 2pm est. His twitter handle is @drjackrasmus.