Greece vs. Europe: who blinked first in the bail-out battle?

By Mehreen Khan 03 March 2015

Has the defiant new government conceded more ground than its creditors? Or is Syriza just bluffing?

The Greek parliament will not be voting on the country's bail-out extension.

Following internal turmoil among the ruling Syriza party over the terms of the reprieve, the Greek legislature will only be given the chance to "debate", rather than officially ratify, the four-month extension.

In an ironic twist of the EU's democratic procedures, Greece's 18 fellow Eurozone parliaments will still need to rubber-stamp the deal.

The move has prompted some to ask whether this represents Syriza's "worst capitulation" in an already protracted and strained series of negotiations with its international creditors.

Last week, Athens drew up a series of reforms in return for the remaining €7.2bn it needs to complete its bail-out programme. At the time, finance minister Yanis Varoufakis insisted the country had become the "co-author of its own destiny" rather than the subject of EU diktats.

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But dissent among Syriza's more Leftist elements started bubbling from the onset.

Syriza MP and London-based academic Costas Lapavitsas has dismissed the deal as one agreed under "economic duress".

The nascent anti-austerity government now faces a four-week race to draft legislation and pass the laws that will see it come good on its promises. Only then will Greece's creditors decide whether or not to disburse the vital cash the country needs to say afloat until June.

But what exactly has Athens signed up for and could domestic political wrangling now put a brake on the country's bid to avert bankruptcy?

Raising the minimum wage

One of the cornerstones of Syriza's plans to end Greece's "ritual humiliation" has been an increase in the country's minimum wage.

In a vociferous speech to his parliament last month, Prime Minister Alexis Tsipras repeated his promise to raise the minimum wage by around 10pc to €750-a-month.

Of the 22 EU member states with a national minimum wage, Greece is the only country that has seen its fall since the financial crisis. The country's nominal gross wage is now 14pc lower compared to 2008, as Greece has undergone a progressive reduction in its labour costs in a bid to restore competitiveness in the stricken economy.

The current €684-a-month puts Greece between its Iberian counterparts, both of whom have seen a steady rise in their mandated wage floors over the last seven years (see chart above): Spain's minimum wage has risen 8pc, while Portugal's has gone up by 19pc.

Tellingly, Syriza's latest reform proposals omit any mention of the €750 target. Instead, the government commits itself "over time to raise minimum wages in a manner that safeguards competitiveness and employment prospects".

The government has also assured its creditors any wage hikes will not be made without the consultation of its European partners. There are also promises to establish an independent body to ensure "changes in wages are in line with productivity developments and competitiveness".

Although the conciliatory wording seems to suggest a climb-down from Athens, there is precedent for a bail-out country to be granted a minimum wage hike while being subject to creditor conditionality.

Ireland's minimum wage has remained largely unchanged from where it stood in 2008, but the Irish government managed to raise the minimum wage in 2011 having slashed it under a recommendation from the Troika in the wake of the country's banking meltdown.

Selling the national silver

The privatisation of national assets has already proven to be one of the most contentious issues within the ruling party's ranks.

While running for office, Syriza vowed to put a hold on the previous government's attempts to sell majority stakes in the country's biggest ports and to halt the privatisation of the top electricity and petroleum companies.

Syriza's Left Platform, which includes notable MPs such as the minister for energy, remain ardent opponents of any "fire sales" of Greece's strategic assets.

Greece's largest port, Piraeus, is partly run by Cosco, a Chinese state-owned company

But in return for their bail-out cash, the government promised last week not to renege on deals that had already been completed. Meanwhile, they would now "review privatisations that have not yet been launched" while any potential deals would be "examined separately on their own merits".

One of the most controversial plans has been the private sale of the remainder of Greece's Piraeus port.

Speaking to the Telegraph, Greece's economy minister vowed to cancel the Piraeus deal and pursue sweeping changes to the terms of already completed sales.

Defending his government's stance, Yanis Varoufakis claims there is enough "creative ambiguity" in the text submitted to Brussels to provide enough wiggle room for Syriza to re-open the question of the sale of Piraeus and Greece's airports:

The law gives the ability to the Greek government both to change the terms of the process, but also to check on the legality of such process," said Mr Varoufakis.

But, in order to avoid speaking with riddles, our position is very simple: the sell-out of the family silverware in humiliating prices, and in a way that does not provide growth-momentum for the economy, needs to stop."

Ending a humanitarian crisis

As part of its now famed Thessaloniki programme of manifesto pledges, Syriza came to office promising an immediate "confrontation of Greece's humanitarian crisis".

The first "pillar" of the programme laid out a series of "emergency interventions" totalling a spend of €1.8bn. They included:

• free electricity to 300,000 households under the poverty line

• meal subsidies for 300,000 families without income

• housing access and rent subsidies for 30,000 households

• a pensions bonus for 1.2m of the poorest pensioners

• free medical care for the uninsured and out-of-work

In its compromise with creditors, the government has retained the language of "fighting against the humanitarian crisis". The letter however does not include the original €1.8bn spend, stating only that poverty-alleviating measures would have "no negative fiscal effect" on the state's balance sheet.

Vanquishing the Troika

All talk of the ECB, IMF, and European Commission as the "Troika" has now been banned on Greece's request. Instead, the triumvirate are collectively referred to by all parties as the "institutions".

But a change in the name represents little more than a rebranding exercise.

The institutions remain firmly in control of the purse strings. They are still responsible for the continued monitoring of the country, and will decide in April if Greece is making enough progress on its austerity promises to be granted the final tranche of its bail-out funds.

But one area where Greece may stand to benefit is in the emergence of a rift in the erstwhile Troika.

Debt negotiations have exposed a schism in the creditor bloc. The Commission in particular has been working hard to ensure Greece's proposals meet the standards for its remaining cash injection. The head of the Euro group has gone as far as to say an early disbursement of funds is a possibility. Meanwhile, the IMF and ECB are continuing to play hard-ball over Greece's commitment to deep-ranging reforms.

However, according to Mr Varoufakis, it is the Commission rather than the Fund or the central bank who "will play the role of the monitoring of the Greek crisis".

Ambiguity over the "constructive ambiguity"

The Greek government has defended itself against the charges of capitulation by repeating that it has finally put an end to the much-resented 'Memorandum of Understanding' that has defined the last three years of hardship in the country.

Key to this claim is less what is laid out in the bail-out extension, than what remains absent.

Crucially, there is no longer a specified primary fiscal target for the government to hit in 2015. Instead, the demand for a 3pc-to-GDP surplus has been abandoned in favour of a yet undetermined but "appropriate" target which will take account of the economy's current turmoil.

Mr Varoufakis is taking great pride in the "constructive ambiguity" Greece has woven into its proposals for a four-month reprieve. Two-thirds of the Troika, and many elements within the German press, think the Greeks are bluffing their way through the deal, speaking in pacifying terms while refusing to be pinned down on any concrete measures.

Only time will tell if this same ambiguity will prove a bigger source of tension or succour for Syriza at home and abroad.

Greece vs. Europe: who blinked first in the bail-out battle? - Telegraph