Mark Ames e-mailed me earlier this month: “Seems you should write an obit on Syriza’s failure, seeing as you were the only one on the left calling out their failure from early on (and taking so much heat for it).”
For those of you new to the site, we posted intensively on the 2015 Greek bailout negotiations. We were early and alone in predicting that the negotiations would fail, as they did. This was an exceptionally unpopular assessment. It offended those who admired the new government headed by the charismatic Alex Tsipras of Syriza who made the articulate and media-genic economist Yanis Varoufakis as his Finance Minister and de facto lead negotiator, along with pragmatists who were confident that cooler heads would prevail and some sort of deal would be cinched.
The denouement is that Syriza, having abandoned its reformist stance, is now out of power. Greek Prime Minister Alex Tsipras had called snap elections for July 7 after the ruling party suffered large losses in European Parliament, local and municipal elections. As expected, the center-right New Democracy party won, by a margin that the press depicted as a landslide, with former banker Kyriakos Mitsotakis becoming Prime Minister.
I didn’t relish being correct at the time, and I take no pleasure in witnessing the failure of a party and an effort to loosen the austerity choke-chain that Greece had been wearing for so long and at such a high cost to its citizens. Even though Syriza lives on in a diminished state, it long ago gave up its pretense of being a force for social justice. From Athens, DiEM25 member David Adler pointed out in the Guardian:
In the four years that followed [Syria’s win in January 2015], Tsipras tried desperately to endear himself to the establishment he once pledged to fight. He protected the old oligarchs and ushered in a generation of new ones. He implemented austerity measures so brutal that even Germany’s finance minister Wolfgang Schäuble accused him of “putting the burden on the weak”. And he placated international investors with big promises of small taxes and golden visas….
In short, Tspiras did not simply capitulate to the troika, or swap his radical ideals for hard-nosed realism. He actively refashioned his government as a rightwing force on the world stage.
We’ll return to Syriza’s sorry performance after the bailouts, but it is frustrating to see many, and from what I can tell, most of the writers who’ve revisited the topic of Syriza’s failure, misrepresent what happened in 2015.
Syriza had already effectively given up the game in February 2015, less than a month after Tsipras took office. The only commentator I have seen who has regularly acknowledged that is then-Syriza-MP Costas Lapavitsas.1. As we wrote on February 19:
Things are not going well for Greece. It appears Syriza has largely capitulated to the demands of the Troika. Greece has submitted a request for a loan extension that the Eurogroup will consider Friday….
This means that Greece is effectively asking for an extension of the bailout, which is what it had refused to do. And that means keeping the “conditionality” as in privatizations and labor-crushing structural reforms, intact. Greece is still fighting to keep some flexibility there but it is not clear they will obtain much. …
Update 8:00 AM. Well, that was fast and ugly. The Germans are playing completely non-negotiable, not that that is a surprise. Greece must surrender completely.
Greece and the Eurozone have entered into what amounts to a letter of intent in the form of a memo released yesterday. It’s important to understand, even as a basis for further negotiations, what this document is and is not. Because this is not a definitive agreement, as in it explicitly states that Greece’s detailed structural reform proposals must be reviewed and approved by “the institutions,” the new name for the Troika, as well as approval by the Eurogroup finance ministers before any funds are released, there is still uncertainty as to how its deliberate ambiguity will be resolved.
There is no way of putting a pretty face on this document. It represents a huge climbdown for Syriza. Despite loud promises otherwise, they’ve agreed to take bailout funds, and the top and the close of the memo confirm that the baillout framework is still operative (emphasis ours):
The Eurogroup notes, in the framework of the existing arrangement, the request from the Greek authorities for an extension of the Master Financial Assistance Facility Agreement (MFFA), which is underpinned by a set of commitments. The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions…
We remain committed to provide adequate support to Greece until it has regained full market access as long as it honours its commitments within the agreed framework.
Even writers who take a positive view of what Syriza accomplished are under no illusion as to how far short Syriza has fallen relative to its lofty promises. From Paul Mason’s blog:
I asked [Netherlands finance minister Jeoren] Dijsselbloem in the press conference: “What do you say to the Greek people, whose democracy you’ve just trashed.” He replied that he did not think that was a very objective question. We’ll have to agree to differ.
There is also language in the memo that looks to authorize the return of the Troika monitors: “In this context, the Greek authorities undertake to make best use of the continued provision of technical assistance.” The Financial Times reads it the same way:
It also leaves the IMF and EU institutions — the European Central Bank and European Commission — in control of evaluating Greece’s economic reform measures and the disbursement of bailout funds, despite Mr Tsipras’ vow to rid Greece of the hated “troika” of bailout monitors.
Mind you, despite the foregoing, it is doubtful that Greece could have done much better, particularly in light of the way the ECB had worked to intensify the already-in-progress bank run and boxed the Greek government in by giving it only a thin increase in the ELA limits [the “Emergency Lending Authority” which was designed to be used only for short-term liquidity assistance but the ECB had been using on an ongoing basis to keep the Greek banking system from collapsing]. A contact told me the Greek government would have had to impose capital controls over the weekend in the absence of a deal; the Financial Times reported close to the same thing by stating that Greece was on track to hit the limits of the ELA on Tuesday (the day after a long holiday weekend). And let us not forget that the Greek government is also slotted to run out of cash by February 24.
Back to the current post. Depending on which account you believe, Tsipras either did not negotiate the memorandum at all or asked for only one word to be changed.
To make a long and sad story short, Greece kept trying to find a way to get some relief from the deal it had signed. Tsipras would make conciliatory remarks when he met European leaders but then would walk them back when he returned to Athens. Whether by accident or design, Greece acted as if it could play a game of chicken with the Troika, that if it refused to go through with the bailout, the Troika would blink and give better terms.
But the Greek government had no basis for believing that. It had no popular mandate to leave the Eurozone and create a new currency, nor was this even remotely possible operationally (see our first footnote). It was not self-sufficient in food, petrol, or pharmaceuticals, That meant it could not afford to be cut off from international transactions for very long (which would be a side effect of trying to launch a new currency while not even remotely having the needed pieces in place). And as we learned later, the Syriza government had no Plan B. Finally, as we pointed out in March, it also had no friends:
A substantial portion of the site’s commentariat has wanted to believe that the Greek government’s defiance of the will of the Troika has been effective, either in and of itself, or as a means of preparing the Greek public and buying time before a Grexit.
As we’ve argued, Greece was almost certain not to prevail on its own. But outside help has been sorely lacking. While the US expressed concern early on, and argued the Greek case, that the nation needed debt writedowns and pro-growth policies, the Administration quickly abandoned its lobbying effort. The European left similarly has not taken up the Greek cause in a meaningful or consistent manner.
As for the notion that Syriza has been planning to depart the Eurozone, we argued that Finance Minister has long viewed that outcome as an unmitigated disaster for Greece and Europe. And perhaps most important, the government’s actions don’t bear that out. The first order of business should have been to impose capital controls. As reader Ishmael stressed, you declare bankruptcy before you run out of cash. This measure would have reduced the Troika’s leverage over Greece somewhat, and would be an absolutely essential step in preparing for a Grexit. Moreover, imposing those restrictions in response to withdrawals could have been positioned as a necessary protective measure if it had been done early on. Acting now would look like a desperate measure, either a last-ditch effort to protect the banks or an admission that Grexit risk was high.
A new story in the Financial Times illustrates what we said early on, that it is the ECB that holds the whip hand. It is the ECB that is keeping the Greek banking system on life support through the backstop of the ELA and also increased pressure on the Greek government by refusing to allowing Greek banks to increase their holdings of Greek government debt (raising the ceiling would have allowed the Greek banks to buy newly-sold government bonds and bills, thus providing the government with a desperately-needed funding mechanism)….
And this chart from Bloomberg illustrates the lessening of the bank run in February looks to be a distinction without much of a difference:
As Mark Gilbert put it:
So the Greek banking system had just a bit more than 140 billion euros at the end of February. That’s down almost 15 percent since the end of November, suggesting bags of capital are fleeing the country as fast as their little legs can carry them. And while extrapolation is an imperfect science, taking the trend from November and running it to the end of this month suggests there could be as little as 133 billion euros left at the current pace of withdrawals, which would be the lowest in more than a decade.
Back to today’s post. In May, things started looking worse for the Syriza government and for Greece. Merkel had taken a personal shine to Tsipras, which may have caused too many parties, particularly in Greece, to take hope. But Finance Minister Wolfgang Schauble had always had more sway with the legislature and press than Merkel on Greece. Even Merkel started taking a tougher line.
One of the most frustrating aspects of conventional coverage of the bailout negotiations has been the depiction of Syriza’s July referendum as a heroic democratic demonstration that the Trokia steamrolled. It in fact was purely cynical. The July referendum was on bailout terms that had expired on June 30. This would be like holding a second Brexit referendum a week after a no-deal crashout. This was a cruel deception by Tsipras. As we wrote:
We described in detail how the referendum scheduled in Greece for next Sunday, July 5, is a cynical exercise in democracy theater. The Greek people are being asked to vote on a (draft) proposal by Greece’s lenders to unlock €7.2 billion in funds, the last portion of the so-called “second bailout” agreed by the Greek government in 2012. Tsipras knew at the time he announced the referendum that the proposal expired on June 30; that was the known-well-in-advance final date for the bailout terms to be agreed if each and every one of the 18 Eurozone countries agreed. We said it was a no-brainer that they would not agree; in Germany as with some of the other countries, it would require parliamentary approval to accommodate Greece’s too-late request, and there was no reason for any of them to cut Greece slack when the government has plenty of opportunity to schedule the vote in time, so it actually would inform the government’s actions.
Instead, Tsipras has already taken the decision to miss the €1.6 billion IMF payment due June 30 and the €3.5 billion ECB payment that falls on July 20, while falsely telling Greek citizens that they have a say in this momentous choice.
Greece’s creditors took the halting of negotiations and the announcement of the referendum on June 26 as tantamount to a rejection of the June 30 bailout. Even though the ECB did not withdraw support to the banks, Greece imposed what amounted to a bank holiday to prevent an acceleration of the slow-motion bank run in progress. Critically, importers could no longer convey payments of goods save by trucking or flying cash across the border. Fish rotted on docks due to petrol shortages. Small business failures rose. Food shortages started in to appear at the wholesale level in the second week after the bank holiday. Greece capitulated on June 13.
The result was that Greece wound up worse off than it if had accepted the Troika’s earlier terms. The already-weakend economy suffered considerable damage in July. And before you blame the meanie Troika (and yes, they were savage), let us now continue with David Adler’s bill of particulars on Syriza in the Guardian:
There is a common view that the Tsipras transformation was predestined…
But nothing was predestined about the eviction of struggling families and the foreclosure of their homes. Nothing was predestined about the auction of vast tracts of land and sea to fossil fuel corporations such as ExxonMobil. Nothing was predestined about the severe overcrowding, sexual violence, and shortages of “doctors, medicine, food and drinking water” in Greece’s migrant camps. And nothing was predestined about the sale of arms to Mohammed bin Salman, the smiles of support for Benjamin Netanyahu and the purchase of fighter jets from Donald Trump.
Now one can say, what could Syriza have done differently?
Arguably, they were hostages of their own PR. Having swept into office promising to get real relief from the Troika, it would have been extremely hard to digest the cold reality of the February bailout memorandum, that lenders were insisting that the old framework and the hated IMF monitors were still very much in place and that Greece lacked the leverage to stare down its creditors. But the reality was the Greek public had the better measure of the odds of success than Syriza did. They knew it was a long shot but they were desperate for any way out.
It is possible that even with the Troika setting hard lines that better negotiators would have made a difference. Varoufakis is a brilliant economist, but economists get ahead by out-debating their colleagues, which is not a good approach to winning over counterparties. But “assume a Talleyrand” isn’t a realistic alternative.
However, there are at least two areas where Syriza did the public a disservice. One is in not going after the oligarchs. Greece has a fabulously broken tax system. Cheating is endemic; probably the only people who come close to paying what they owe are civil servants.
The IMF and the nation-state lenders were at their wits’ end about the inability of Greece to collect a reasonable level of taxes.
One of Syriza’s potential selling points was as outsiders to Greece’s fabulously cronyistic political system, they could crack down on vested interests. This was a big bargaining chip they had and failed to use. “Look, you need us to reform the tax system. But we cannot do this overnight and we certainly can’t do this without hiring more people and without getting some measure of cooperation from the public. We need time and we need to deliver some short-term wins to ordinary people, even if they are small.”
One measure that would have boosted Syriza’s credibility enormously would have been to crack down on exposed oligarchs. The most obvious target would be ones that held TV and radio licenses. They could have threatened to pull their licenses in the absence of adequate reporting and tax payments. But Syriza was unwilling to do so because it felt it needed media backing to stay in power.
Second was that the creditors were up in arms about Greece’s generous-looking pension system. From Greek Reporter in 2014, citing the then-current labor minister:
“In the public sector, 7.91% of pensioners retire between the ages of 26 and 50, 23.64% between 51 and 55, and 43.53% between 56 and 61. In IKA, 4.44% of pensioners retire between the ages of 26 and 50, 12.83% retire between 51 and 55, and 58.61% retire between 56 and 61. Meanwhile, in the so-called healthy funds, 91.6% of people retire before the national retirement age limit,” Vroutsis said.
This stuck in the craw of Germans who were having their retirement age increased from 65 to 67.
However, the picture looks a bit different when you understand that Greece used pensions as a one-stop social welfare system. As the Economist pointed out in 2010:
Finally, as in many Mediterranean countries, all social spending was skewed towards pensions, essentially for vote-winning purposes. Things like unemployment benefits are pretty miserly in Greece, the real money has always gone to pensions, which have been used as a “substitute” for other welfare policies.
Amazingly, the IMF may have gotten the point on its own but too close to the June negotiation breakdown to make a difference. We discussed at length a creditor concession that went unnoticed and the Syriza side never took up:
The creditors are proposing a social safety net and a minimum guaranteed income program, plus the hiring of 50,000 people for social works. Now a lot of pixels have been spilled on the Greece/creditor negotiations, far too many for me to stay on top of them all. Nevertheless I don’t recall seeing anyone take note of this section.
Now what if Syriza early on had made a point of showing that its social spending overall wasn’t out of line even by poorer European country standards, but it was badly structured and they needed time to move towards a modern system with less generous pensions and proper disability and unemployment insurance? This would have taken the wind out of “Those Greeks have inexcusably generous pensions and they are fighting to keep them!” And recall that pension “reforms” were one of the areas on which the talks foundered.
One of the reasons that our take on the negotiations aroused so much pushback was that few wanted to learn that Syriza and the Greek people had no good options. Saying that the plucky Greeks were sure to lose was regularly mischaracterized as siding with the Trokia, when a doctor who diagnoses a patient with Stage 4 cancer isn’t rooting for the cancer. The Greeks held up despite the horrific terms imposed upon them; one can only hope they get the relief promised by Syriza but have yet to see.
1 Lapavitsis argued for Greece to leave the Euro and launch a new currency. Not only would that have been at odds with the overwhelming majority of the Greek public (ie, Syriza had no mandate to take such a radical step), Varoufakis had explained on his website before he became Finance Minister why he thought it would be bad for Greece. Varoufakis focused on macroeconomic consequences.
In another one of our unpopular veins of writing on Greece, we explained long form why launching a new currency was operationally not feasible in anything less than three years based on IT requirements (not just in Greece but for any member of the payments system that might handle transactions in the new currency) which given how large IT projects go, meant realistically 5+ years. Even just designing, printing, and distributing new cash would take at least a year (you need to modify ATMs to carry the new currency or be dual currency, which means ordering parts, fitting the machines and then hauling the new money around and stocking the modified ATMs). That in turn meant Greece would need the cooperation of the Eurozone and the ECB, when the point and effect of a Grexit would be to tell them to pound sand.
Oh, and on top of that, launching a new currency would make Greece’s debt burden worse. The new currency would almost certainly fall relative to the Euro. Most of Greece’s debt was not only Euro-denominated but also “English law” debt, so the Greek government could not redenominate it in the new currency.