by Angel Ubide
Peterson Institute for International Economics
February 24th, 2015
Greece’s last-minute agreement with the Eurogroup on Febuary 20 averted a potential major financial disaster. The Greek government was days from running out of money to pay the bills. But despite the claims of victory by both Prime Minister Alexis Tsipras and his European creditors, little has changed in the relationship among Europe, the International Monetary Fund (IMF), and Greece, as I expected. Paraphrasing the Sicilian novelist Giuseppe Tomasi di Lampedusa, change has occurred in Greece, so that nothing (or little) changes.
The deal was similar to what Greece would have obtained with the previous government. Any potential change will come in how Tsipras’s government implements it. Given the agreed fiscal targets, will the composition of expenditures and revenues, or the type of reforms, be adjusted? Given the left-wing political leanings of Tsipras’s Syriza coalition, one would expect some different priorities. There is always flexibility within a fiscal policy path and a reform objective, and that flexibility is dictated by domestic choices.
Greece has no market access, is facing a sharp liquidity crunch, and needs external funding. It remains under the monitoring of the IMF, the European Commission, and the European Central Bank (ECB)—a group formerly known as the “Troika,” now to be called the “institutions” as a gesture to Greece’s sensibilities. The agreement of late February calls for a four-month extension of the current program, which may be granted based on proposals that Athens is to submit by the end of the month. No new funding has been agreed, leaving Greece’s acute liquidity crunch unresolved. A possible solution (including the ECB’s reinstatement of the waiver to accept Greek government bonds as collateral) could be adopted if the Greek proposals are submitted and accepted by the Eurogroup.