- The Greek government will have 48 hours to draft a comprehensive set of reform proposals, dictated from Brussels and including tax increases , pension reform, the works; submit them to Parliament and have them approved. This will re-establish “trust” according to Eurogroup Chairman Jeroen Djisselbloem, though obviously not the trust of the Greek people in European institutions. That is not a concern, obviously;
- At that point, the European Commission will go back to the national parliaments with a recommendation to vote in favor of a new bail-out for the Hellenic Republic, including bridge financing from the European Stability Mechanism. The ECB may also extend the ELA coverage for Greek banks, though not before the reform bill has been enacted;
- On top of the reforms, Greece must also hand-over 50 billion euros worth of “valuable state-owned assets” to a fund that will then monetize (i.e. privatize) these assets in order to repay outstanding debt. After that, half the fund will be used to recapitalize the Greek banking system while the other half will be used to invest in the Greek economy. The only concession to Mr. Tsipras is that the fund will be located in Greece, rather than in Luxembourg as initially suggested.
Today, Mr. Tsipras returns to Athens like Edvard Beneş returned to Prague in 1938; humiliated, presented with a fait accompli and forced to capitulate. Greece will not be partitioned, but its economic sovereignty has been terminated by diktat nonetheless. The creditors achieved their principal goals:
- The political elites had sought the humiliation of Alexis Tsipras and Syriza in order to “sterilize” the growing power of the European left in rejection of austerity. It remains to be seen if Alexis Tsipras will be forced out of power or whether he will have to purge the more hardline elements of his party and come to terms with New Democracy to form a voting coalition, but it seems certain that current, fragile, shape of Syriza cannot withstand the conditions that have been imposed;
- The economic elites had also sought the privatization of state-owned assets (SOA’s), whether these were profitable or not. That was never a criteria; in fact, the more profitable the asset, the greater the desire to get their hands on it;
The humiliation in Brussels exposed the fault lines within the European “Union” and the existence of different visions of the European project: “two-speeds” for Europe, even if only politically. The Dutch, Finns, Baltic States all seemed willing to see Greece depart for her failure to abide by the fiscal austerity demanded of her. Meanwhile, France and Italy were keen on a political settlement even at the price of relaxing the stringent conditions; certainly, both states would be happy to relax their own fiscal targets some more. The IMF, speaking this time with the voice of the United States, also urged a deal on relatively lenient terms. Germany still served to bridge the gap between the two sides, but it is questionable how long Angela Merkel will be able to maintain such a balancing act when Alternative für Deutschland is clamoring “enough is enough” from the German right and winning votes. Since their founding in 2012, they have grown quickly enough to be a cause for concern for the center right CDU:
- In 2014, AfD won 9.7% of the vote in Saxony, 10.7% in Thuringian and 12.2% in Brandenburg;
- In 2015, AfD won 6.1% of the vote in the Hamburg state election and 5.5% in Bremen.
Given the impressive and rapid growth of anti-euro, anti-mainstream parties in Italy, Spain, France, the United Kingdom and – of course – Greece, Angela Merkel is rightly concerned with not giving populist politics too much scope in Germany. She has had to tread a very fine line between saving the Euro and saving CDU; which may be the same thing.
Greece is not yet settled: there is a non-zero probability of the Greek parliament rejecting the terms of the “deal”. That would lead to almost immediate Grexodus, because the Greek banks are out of cash and the bank holiday cannot be extended much longer; so it is unlikely to happen. There is a slightly higher probability of the government collapsing if the Syriza left defects and New Democracy refuses to back Tsipras’ faction; but that would also lead to Grexodus, so it too is unlikely. It seems most likely that Greek resistance peaked during the referendum but has burnt itself out: there is nothing left but abject resignation. This only kicks the can down the road again, at most for the three years of the new bailout term, but perhaps sooner. The economic situation in Greece is not going to improve under the terms of the agreement even if a Greek government implements reforms ruthlessly and the public debt remains unpayable under any scenario. If the people of Greece picked Syriza in their despair after 5 years of suffering, who are they likely to pick in 3 more years of suffering and hopelessness? Someone more “radical” than Syriza, like Golden Dawn? Good luck negotiating with them.
Before then, Europe will face an even bigger test in the 2017 French national elections. Marine Le Pen and her Eurosceptic National Front continue to trail Nicolas Sarkozy, but the French are not happy with “le joué d’Allemagne” and the secondary place French interests have been perceived to play in resolving the Euro crisis, rightly or wrongly. As the French economy continues to sputter, it is a message that will continue to resonate with the electorate and contrast with Sarkozy’s well-known “cozy” relationship with Merkel. The high probability of more terrorism striking France before the election will keep the issue of immigration at the boiling point, which will also play to one of Ms. Le Pen’s strengths. Should Mrs. Le Pen actually win control of the Fifth Republic, it would be a cataclysmic end to the Euro.
From beginning to end, the narrative has been about a failure to implement reforms. The Troika has used that stick over and over again to castigate Greece and the Syriza government; and there is truth in that accusation. Unmentioned is the failure of Europe to implement the necessary reforms: there have been efforts ongoing since 2010; but patchily and reactive. Some of dubious legality though no one has pushed that line of inquiry too hard; knowing that pulling on that string might make the whole rotten fabric unravel. Europe desperately needs a constitutional reform, but there is no appetite for it since French and Dutch voters torpedoed the European Constitution in 2005. Imagine if the US states had rejected the Constitution and opted to keep the Articles of Confederation; Europe remains in this embryonic, weak and unstable state.
If Alexis Tsipras survives the domestic backlash over the next few days, he can still make something of his Administration. People forget that Syriza was elected on a dual mandate: both to fight against austerity imposed from abroad, and to fight against corruption, impunity and oligarchy at home. The second part of that mandate still calls for action and a vigorous anti-corruption campaign may pay both political and financial dividends for Greece. The fiscal burden will be more equitably divided and greater legal and government transparency will improve the investment climate and encourage more long-term investment. But Tsipras must first survive and then be able to swallow pride and humiliation in order to focus on what can be achieved for his country, rather than on what he would have liked to have achieved. That is not an easy transition for anyone, but whatever future Greece might have now depends on courageous citizens rising above their circumstances.
 “Anti-euro party makes big leap in Thuringia, Brandenburg state elections,” Deutsche Welle, 14 September 2014
 Though Mr. Sarkozy also has a reputation as a “strong man” and tough on crime, terrorism.