ATHENS – Greece has, at the very least yielded. The pressure from the Troika, serious liquidity problems and tensions in the financial system led to the Government of Alexis Tsipras to announce Tuesday that he would ask for a six-month extension of the rescue program that is intended to keep the country afloat.
After a couple of weeks of heavy pressure, including an ultimatum from Troika members, Varoufakis has admitted that Athens “needs to extend the credit program” to negotiate with more ease a third rescue that is in the making. The game, however, could be far from being over.
Greece sent a letter to Europe with its best offer, and Greek creditors are now assessing whether Greece meets the conditions. Only then, if the request is closer to European requirements, a special meeting will be held to work out the details of the extention.
Greek government sources have explained that Athens thinks of an extension that is clearly distinguishable from the memorandum previously presented by the troika, a crony banker-led organization composed by the European Commission, the IMF and the ECB.
Despite accepting Europe’s demand to request a new extension, Athens remains deliberately ambiguous. On one side, the conditions of the request must please the European partners, but they also need to satisfy the Greek electorate that voted for Syriza.
Varoufakis explained that there will be a few “conditions” which he did not specify, while the Troika says it is happy to grant semantic victories to Greece, and even provide some flexibility. But the Europeans want a victory in the making of the agreement: an extension of the current program and most of its harsh conditions.
The idea being entertained in Athens is to request an extension on the line of credit according to the plan designed by the European Commission in recent days. That plan, however, has not even been discussed in the Eurogroup, whose president, Jeroen Dijsselbloem, has opted for a much less friendly proposal that has led the Greeks to reject the pact and the Eurogroup to pose an ultimatum.
Greece’s move has come after a day of multiple statements, pressure on both sides, a lot of posturing within the eurozone and Greece’s recognition that the country needs the money. So far, the only alternative was to break with Europe and to enter a very dangerous scenario.
After Greece decided to yield, everyone now expects Europe to yield, too. This means making political and financial concessions to a country that has lost a quarter of its GDP in the last five years and whose financial bailout has not prevented perpetual indebtedness, unemployment and the continuous state of social emergency.
Europe may now allow Tsipras to reduce austerity a bit. It will ease the debt burden. It will allow some social spending to the most pressing problems. After grueling negotiations that most likely will leave a sour feeling in Greece, the country is heading towards the start of even tougher negotiations: the third financial bailout of the banking system.
Greece and its so-called Euro partners are already very close to a compromise on the substance of the program while several members of the euro yesterday put a lot of emphasis on Greece’s delicate liquidity situation.
The recovery has vanished. The flight of deposits intensifies and Athens has seen its public finances suffer. That scenario has weighed on the government’s decision, but the mess is not over. Athens has apparently threatened to call for early elections if the Troika rejects its offer in the coming hours.
The eurozone has shown a degree of hardness that means no major concessions, especially from the German leadership that wants to avoid surprises in the domestic political arena, and with allies like Spain and Portugal who feared a European contagion if Syriza manages to get its way.
It remains to be seen who will come out stronger out of future negotiations. Greece has stepped forward to reach an agreement that secures six months of calm. Meanwhile, the European Central Bank will be able to concentrate on its bond purchases at a large scale that it hopes can make a difference from the last five years of crisis.