by Jacob Funk Kirkegaard
Peterson Institute for International Economics
February 25th, 2015
Greece and the Eurogroup have struck a deal designed to avoid another economic meltdown and even return Greece to economic growth. An additional four months have been added to an earlier two-month extension of the review of Greece’s economic reform program, giving Athens and its partners until the end of June to reach a more comprehensive arrangement. As previously discussed, the threat of an acute fiscal revenue crunch and an accelerating deposit flight from the banking system gave the new Greek government no choice but to reverse course and seek such an extension while remaining committed to the goal of reform.
Indeed the new list of Greek reform commitments includes most of the agenda in the existing program imposed by the Troika, consisting of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF). Both the IMF and the ECB [pdf] will not accept vague “policy commitments” from Athens but instead will demand concrete reform implementation before releasing further funds to the new government.
Despite the predictable spin, this outcome represents a Greek government capitulation—and a likely worse outcome for the Syriza coalition in Athens than what might have resulted from a more levelheaded and credible negotiating strategy.