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Wednesday, 18 February 2015

Negotiation Breakdown Exposes Widening Rift Between Germany and Greece

Michael: Well, when Johnny was first starting out, he was signed to a personal services contract with this big-band leader. And as his career got better and better, he wanted to get out of it. But the band leader wouldn’t let him. Now, Johnny is my father’s godson. So my father went to see this bandleader and offered him $10,000 to let Johnny go, but the bandleader said no. So the next day, my father went back, only this time with Luca Brasi. Within an hour, he had a signed release for a certified check of $1000.
Kay Adams: How did he do that?
Michael: My father made him an offer he couldn’t refuse.
Kay Adams: What was that?
Michael: Luca Brasi held a gun to his head, and my father assured him that either his brains or his signature would be on the contract.
--The Godfather, 1972
As negotiations between Greece and the various members of the Troika continue, one of the things
Elias Tabakeas
that has been striking is how, virtually without exception, media stories, financial commentators, and interested and reasonably well informed observers continue to maintain that a deal will get done by the 28th (which is allegedly now by this Friday at the absolute outside given the need for parliamentary approvals. As we’ll discuss, that confidence flies in the face of available evidence, in terms of the trajectory of the talks and the manner in which the latest Eurogroup session fell apart on Monday.
Mind you, I am not saying a “deal” of some sort will not eventually get done. But looks increasingly improbable that an agreement to finesse an extension of the current Eurozone bailout will come together. That does not mean that other options to throw Greece a financial lifeline are foreclosed. But let’s understand where things stand now: based on the current, clear positions of both sides, there is no negotiating solution space. Their bargaining positions do not overlap.
And not only has neither side moved much, the German actions yesterday were tantamount, Mafia-style, to making a less attractive offer than the one tabled by the Eurogroup and rejected by Greece last week. Greece was supposed to get the message that this was an offer that they were in no position to refuse. So while external forces might lead the principals to modify their stances, there is no reason to see the odds favoring getting a deal done.
For a longer-form recap of the events of yesterday, see Paul Mason of Channel 4, Ambrose Evans-Pritchard of the Telegraph, and our posts yesterday (here and here).
The short version is that the Greek side was presented with a memo by EU Commissioner Pierre Moscovici prior to the Eurogroup meeting that it was prepared to sign. Paul Mason explains why:
…the document…said: “The above forms a basis for an extension of the current loan agreement, which could take the form of a (four-month) intermediate programme, as a transitional stage to a new contract for growth for Greece, that will be deliberated and concluded during this period.”
As this is exactly what the Greeks wanted, it explains the shock, and the urgent nature of their briefings to journalists Monday afternoon when it was replaced by a much harder form of words.
The not-trivial problem was that Moscovici was not an authorized emissary of the Eurozone. When the session began, Eurogroup chief Jeroen Dijsselbloem presented a significantly different document that the German press reported was handed to him a mere 15 minutes before the meeting. Ambrose Evans-Pritchard describes why this proposal was unworkable for the Greeks:
The Eurogroup text said “the Greek authorities have indicated that they intend to successfully conclude the programme taking into account the new government’s plans”. A leaked copy showed these words crossed out by Mr Varoufakis, who peppered the paper with angry annotations.
Part of the dispute appears semantic but has political implications. The Greeks want a new arrangement, but that would require a vote in the German, Dutch, Finnish and Slovak parliaments, where patience with Athens is exhausted. The Eurogroup is insisting on an “extension” of the programme, which does not require parliamentary assent.
Yet the clash runs deeper. The text said the Greeks must toe the line on “tax policy, privatisation, labour market reforms, financial sector and pensions”. It said Greece must continue with “fiscal surpluses” imposed by the troika, meaning that Athens would have to raise the primary budget surplus from 1.5pc of GDP in 2014, to 3pc this year and 4.5pc next year.
To put that in context, Dean Baker points out that a 4.0% primary surplus for the US would be $720 billion.
Vangelis Papavasiliou

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