The Greece-Eurogroup agreement

Note kindly translated by Anne-Marie de Grazia

The agreement concluded on Friday February 20 between Greece and the Eurogroup is giving rise to contradictory comments. In order to understand and analyse this agreement, one must go back to its context, both in the short and the long term.

A temporary agreement

The goal of this agreement was to avoid an immediate crisis. Alexis Tsipras’ government had committed itself to this. A crisis less than a month after gaining power would have probably provoked chaos. Moreover, this agreement deserves to be looked at very carefully. There being much more to it than is said by Paul Krugman in his New-York Times post[1]. In fact, Greece has obtained several things:

  1. Greece is no longer obligated to reach a primary budget excess of 3% this year. Only equilibrium is demanded.
  2. The « contract » running for 4 months is explicitly designated as a transition towards a new contract which remains of course to be defined.
  3. The « Troïka » no longer exists as an institution, even if each of its constituent parts continues to exist. It’s the end therefore of the teams of men in black suits coming to dictate their conditions to Athens.
  4. Greece will from now on write down the order of the day of reforms, and it will do so by itself. Institutions will be able to give their advice, but will no longer be able to erect one particular point of these reforms into an imperious obligation for Athens.

A more discreet advantage is that the Greek government has broken the façade of unanimity of the Eurogroup and has forced Germany to reveal its positions. But Greece has accepted – for the time being – to recognize the totally of its debts. There has been no progress on this point, and no sign of a change in attitude on the part of Germany.

A limited success.

But this is a limited success. In four months, at the end of June, the Greek government will be again confronted to the Eurogroup, and this time, it will not be an easy negotiation. The Athens government will propose reforms and one can expect that these will bring the fiscal burden to bear on the privileged, and the bones of contention with the Eurogroup and Germany will grow even harder (become even worse). In fact, Germany cannot give in, and neither can the Greek government. This implies that we are moving towards a new confrontation, unless in the meantime an anti-German « alliance » should be formed. This is what Tsipras is hoping for and on this point he is wrong. The French and Italian governments are won over to the German idea.

And still, the idea of using the sums allocated for reimbursement (interest and principal) to relaunch the Greek economy and develop investment, which has fallen to a historically low level, makes sense.

Graph 1

Evolution of investments in Greece

 A - Invest

IMF Data base

The free-fall of labor productivity (in addition to the one of production) is the indicator of the fundamental failure of the policy of austerity.

Graph 2

Evolution of the labor productivity in Greece

 A -Prod du T

Similarly, taking emergency humanitarian measures is fundamentally right, but it clashes frontally with the creditor’s logic defended by Germany.

Getting ready to get out of the Euro.

Better would be to use these 4 months won in a hard-fought struggle in order to prepare the inevitable, that is, an exit from the Euro. Whatever the negotiating strategy of Greece, and the one conceived by its Minister of Finances Yanis Varoufakis is excellent, we must ask ourselves about the goals of these negotiations. As a matter of fact, Greece cannot obtain things which are, in the present political context, contradictory. It cannot get out of its debts (at least in part) and keep the Euro. The paradox resides in the fact that an exit of Greece from the Eurozone, by the induced effects it will produce, will spell fairly rapidly the end of either the Euro, or of the policy of Germano-austerity. But, for this to happen, Greece must get out of the Euro.

It has four months to prepare for it, to convince its population that such an outcome is inevitable and that in reality this very outcome will represent a progress. It is also probable that this will also imply changing the Minister of Finances. Not that Yanis Varoufakis hasn’t been up to the job, far from it. But it will be necessary to call the color, and to do it in such a way that the new strategy of Greece will be taken seriously. The nomination of men and women known for their negative opinions about the Euro would be a strong signal that Greece is getting prepared for a struggle in the best of dispositions.




Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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