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February 21, 2017


Change of hearts or just another smokescreen?

After months of no movement at all, all sides seem to have changed their positions within a week. Greece accepted to legislate new measures at yesterday’s eurogroup meeting, Jeroen Dijsselbloem said the eurogroup no longer wants austerity for Greece, only some structural reforms, and the IMF may have found a way to stay on board the third programme, though this has to be backed up at the meeting between Christine Lagarde and Angela Merkel tomorrow. Much of the work still needs to be doneat, and it is not clear that this feel-good agreement can be backed up with binding commitments.

Concretely, at the eurogroup yesterday Greece agreed to legislate upfront measures to lower the tax-free income limit and to cut pensions, together worth 2% of GDP. If the primary surplus in the 2018-2020 period is above the target, Greece is allowed to spend the money on its counter measures. Jeroen Dijsselbloem said after the meeting that the aim is to move away from austerity and towards structural reforms and growth-friendly measures to help Greece’s recovery. It is not clear to us whether this is just a relabelling or a real policy shift. 

They also agreed to not call it austerity any more. The message is that no more money is spent on austerity. Macropolis reports thatt, aas soon as the Eurogroup finished, Athens issued a non-paper insisting that the agreement will not involve any extra austerity and will be fiscally neutral because every measure adopted would be balanced by another aimed at easing the tax burden or increasing spending for the most vulnerable members of Greek society. Even if the eurogroup agrees that Greece might continue its over-performance, there is no guarantee.

The institutions are to return to Athens, possibly today, and will negotiate the fine print of this agreement. In particular they will have to address the following open issues:

  • what exactly the new mantra of moving away from austerity means;
  • Djisselbloem mentioned that Athens might hope for return of collective wage bargaining, taking into account the improvement of EU practices, but again it depends on the detailed negotiations; 
  • there is no clarity yet on how long Greece has to produce a primary surplus of 3.5%, though they appear to insist on a minimum of three years;
  • even more vague is the reference to the medium-term debt relief that could be offered at the end of the second review. Germany and Slovakia already signalled their resistance;

The worst-case scenario is that the eurogroup was just to get the institutions back to Athens, and that the tricky parts will come up later. That is the easy part. The hard part is to outperform this expectation.

Our other stories

We also have stories on Martin Schulz promising to undo Schröder's Agenda 2010; on the likely sale of Novo Banco to Lone Star; on another Dutch minister under fire; on supervision of cross-border bank branches; on how to deal with Germany's current account surplus; on how no accusation sticks to Marine Le Pen; on Enda Kenny preparing a party leadership contest; and on why Central Bank independence is not sustainable.

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