What Compromise?

They will not get what they want. Will they take what they get? Eventually, Tsipras got his way in procedural terms as representatives of the Institutions as well as German Chancellor Merkel and French President Hollande (what about the others, in particular the Eurogroup representative, by the way?) eventually met for what was branded as a secret emergency meeting. The outcome of this meeting has not been made public. Rumours have it the Greek government will get offered some goodies in order to sell the deal domestically. One of this goodies seemsto be a compromise in regards to the primary budget surplus. So far, the Institutions and in particular the IMF pressured for a primary budget surplus in the range of 5 %. This would imply a drastic continuation of harsh austerity policies, given that the Greek economy moved back into stagnant to negative territory. It is not clear to me whether such a demand is driven by the statutes of the IMF or whether it is a politically motivated number in order to satisfy the hawks in the IMF who complain since quite some time about a special favourable treatment of Greece. It can’t be realistically a number that is based on sober economics. A primary budget surplus of this magnitude would push Greece definitely back into recession, and cause social as well as political trouble. The problem with reducing the demand for a primary budget surplus to a significantly lower level is a special IMF problem as it is not allowed to hand out funds for an economy whose debt level continues to stay on a too high level or even may increase. The current public debt ratio of 180% is seen as too high and nit sustainable. If it is correct that the new offer followed the course of the EU Commission and the required primary surplus would be in the 1%-range, then it needs further steps on the side of the creditors. Such a primary surplus target would imply that creditors will have to further extend the amortization period and may even have to further reduce the interest rate. Only in such a case one condition for the reduction of the debt ratio would be fulfilled.

Even a 1% target would require drastic actions ion the side of the Greek government. At this point, Greece is on course of a primary budget deficit, and this would be needed to turn around in quick time. Moreover, such a offer looks pretty much like the long-damned ‘pretend-and-extend’-approach of the past. It would help, though, to de-freeze the last tranche of the current program and thus to guarantee liquidity in order to make the next IMF and ECB payments. It would not solve the problems at all, though. The last offer would only be the invitation to negotiate the next emergency program, and this would come with more harsh demands from the side of creditors who must make an argument at home how the continuation of support could be justified.

On surface it seems that the “Realos’ in Syriza try hard to keep Greece in the Eurozone and simultaneously to keep their radical faces. The ‘Le Monde’-piece of Prime Minister Tsirpas is only one example to show demonstrate backbone to the more orthodox members of Parliament and party by shifting responsibility to the creditors. This may work in regards to keeping electoral support, either for potential new elections or for a referendum on the further policy course. To sell the last offer of the creditors to a domestic electorate that in the meantime knows everything about the ‘pretend-and-extend’-approach may be not so difficult as it may sound as  the electorate may be willing to play the game as long as it comes not with too harsh a austerity course.