Greek deal opens new chapter in extended bailout saga

The decision by the eurogroup of finance ministers to approve a list of reforms submitted by Greece brings to a close weeks of wrangling between the Syriza-led government and its international creditors. But it also opens a new chapter in the Greek bailout.

Pending approval by national parliaments in five euro zone countries, a four-month process will now begin during which Greece and its international lenders will seek to thrash out specific details of the agreement that was agreed in principle today.

In many ways the six-page document submitted by the Greek government last night contained more detail than had been expected. Though the proposals are loosely grouped under thematic headings such as “financial stability” and “policies to promote growth” they do include significant detail.

For example, the proposal to tackle “public administration & corruption” includes a pledge to reduce the number of government ministries from 16 to 10,; tighten the legislation concerning the funding of political parties; revive an online public procurement service, and address the funding of state media.

It also makes reference to politically-sensitive issues such as privatisations and the raising of minimum wage levels.

In both cases Syriza can be seen to have made significant concessions –it has pledged not to roll back privatisations that have already been completed, while it has also said it will raise the minimum wage “over time” and only in consultation with social partners and the European and international institutions.

As it stands, the list is likely to be sufficiently comprehensive to ensure the support in the five euro zone countries that need parliamentary approval.

But the list also contains significant gaps. Most notably, the document contains virtually no references to specific figures.

Exactly what revenue and savings will be generated by the proposed measures will be of crucial concern to the EU and IMF – or the institutions formerly known as the troika - over the next few weeks.

This is of crucial relevance to the concept of flexibility being promulgated by both the government in Athens and its international creditors as a possible solution to the Greek crisis – that Greece can propose alternative fiscal measures to those proposed by the troika, but only if they are of equivalent “fiscal value.”

In essence, Greece is being asked by its lenders to do what Ireland quietly did when the Fine-Gael/Labour government assumed power and inherited the Irish bailout - negotiate small but fiscally-neutral changes to its bailout terms.

Speaking in Brussels this morning, Minister for Public Expenditure and Reform Brendan Howlin pointed out that Ireland succeeded in reversing the minimum wage cut and changing VAT and PRSI rates relating to tourism in negotiation with the troika.

“Tactically we differed from Greece in as much that we did a lot of that below the waterline as opposed to in the full glare of publicity,” he said.

Whether Syriza’s radically different approach of taking a more vocal stance against the troika will deliver more or less benefits for Greece than was achieved in Ireland remains to be seen in the coming months.

Today’s agreement, and its expected approval by the relevant national parliaments, will pave the way for an extension of Greece’s bailout loans for a four-month period thereby averting a possible funding catastrophe when Greece’s bailout expires next Saturday.

In particular it will ensure that Greece will be able to meet debt repayments due next month. But the pressure to negotiate a more long-term plan will continue to weigh both on Greece and its international creditors.

The temporary programme is due to expire on June, just before a major fund repayment cliff in July and August. Over the next few months markets will need to be assured that there’s a more medium-term solution for Greece to ensure the country is in a position to meet its debts as they fall due.

Today’s agreement, though a welcome and necessary reprieve for Greece, is only one step in what promises to be a much longer story.

Today marks just the beginning and not the end of a difficult process for Greece and its international lenders as they continue to seek a long-term solution to the Greek financial crisis.