Saturday, February 21, 2015

Greece deal: first step on the road back to austerity

Phillip Inman, economics correspondent Saturday 21 February 2015

The extension of the Greek bailout with barely a concession to Yanis Varoufakis’s demands proves only that Europe wants him to stick with the programme

German finance minister Wolfgang Schäuble

German finance minister Wolfgang Schäuble: ‘Reality is often not as nice as a dream.’ Photograph: Stephanie LeCocq/EPA

The right-wing orthodoxy that dominates thinking in Brussels has asserted itself over the hapless Greeks. A deal that allows the Eurozone policymakers, the International Monetary Fund and the government of Athens to keeping talking next week is the first stage in a clampdown on anti-austerity sentiment.

That much was clear from the statements coming out of Brussels, not least those from Wolfgang Schäuble, Germany’s veteran finance minister, who indulged himself with some patronising comments to show where the power lies. “Being in government is a date with reality, and reality is often not as nice as a dream,” was the quip he delivered with a smile, one that is usually omitted from diplomacy school.

Greece has many enemies inside the Eurozone. Both the countries that have suffered Brussels-inspired austerity – Portugal and Ireland – and those that have played a role in enforcing it – the Germans, Dutch and Finns – want the radical left-wing Syriza-led government in Athens to stick with the programme. France and Italy might have proved reliable allies and have been courted by the Greeks, but stand meekly on the sidelines offering warm words and little else.


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For the right-of-centre parties that control Portugal, Ireland and probably more importantly Spain, which is also under serious threat from an anti-austerity party, the need to keep Greece in check is driven by domestic politics. Any sense that austerity was ever wrong or that it delayed the recovery, as Greek finance minister Yanis Varoufakis argues, would undermine their authority and hand the intellectual higher ground to rival parties.

So Varoufakis’s first demand for a debt write-down was dismissed. Then his attempt to win a bridging loan, separate from the existing bailout deal, was trashed. Decisions to suspend privatisations were frowned on. Now he must use what money is available to shore up Greek banks. Where have we heard before that the banks must come first? Varoufakis wants to boost demand by handing some cash to workers and pensioners in the form of a higher minimum wage and modestly larger pensions.

Greece deal: first step on the road back to austerity | Business | The Guardian