Greece Gets Green Light, but Rough Road Ahead

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Out­look

Read­ing noth­ing g but the head­lines on Tues­day morn­ing, one might have as­sumed that the Greek gov­ern­ment’s re­form pro­pos­als — re­quired as part of a deal for a four­month ex­ten­sion of its bailout pack­age — had been met with open arms by the coun­try’s three ma­jor cred­i­tors. “Greece Wins Re­prieve as Euro Re­gion Backs Aid Ex­ten­sion,” wrote Bloomberg. “Every­body’s happy as Greece’s wish­list gets EU ap­proval,” For­tune said. “Greek bailout plan gets green light,” read CNBC.

That green light may have been more like a flash­ing yel­low, though. A close read­ing of let­ters sent to the Eu­rogroup Pres­i­dent and Dutch Fi­nance Min­is­ter Jeroen Di­js­sel­bloem by the In­ter­na­tional Mon­e­tary Fund and the Euro­pean Cen­tral Bank, as well as a state­ment from the Eu­rogroup it­self, sug­gest some­thing more like a con­di­tional ap­proval con­tin­gent on ad­di­tional changes to the Greek pro­pos­als. The three groups to­gether make up what is known as the “Troika” of cred­i­tors that has been dic­tat­ing terms to Greece for the past sev­eral years.

The Eu­rogroup, which is made up of the 19 fi­nance min­is­ters of the Euro­pean Union, did give its ap­proval to a four-month ex­ten­sion of the cur­rent pro­gram, agree­ing to con­tinue pro­vid­ing fi­nan­cial sup­port to Greece. The ex­ten­sion can­not be fi­nal­ized un­til the deal is ap­proved by the leg­is­la­tures of sev­eral Euro­pean coun­tries, in­clud­ing Ger­many, where public opin­ion is largely hos­tile to cut­ting the Greeks much slack more than five years into a se­ries of bailouts.

Skep­tics in Ger­many and else­where will have to look no far­ther than the Troika’s own as­sess­ment of the Greek plan for ammunition.

The newly elected Greek gov­ern­ment sub­mit­ted a pro­posal late on Mon­day out­lin­ing how it planned to meet the terms of its bailout agree­ment even as it eased some of the aus­ter­ity poli­cies that have caused sig­nif­i­cant hard­ship over the past sev­eral years. Greece still suf­fers from high un­em­ploy­ment and low eco­nomic growth, even as some other parts of the Euro­pean econ­omy have seen stronger re­cov­er­ies and, in some cases, ap­pear have be­gun grow­ing again.

The Eu­rogroup state­ment said that its mem­bers “con­sider this list of mea­sures to be suf­fi­ciently com­pre­hen­sive to be a valid start­ing point for a suc­cess­ful con­clu­sion of the re­view.” A few sen­tences later, though, it added, “We call on the Greek au­thor­i­ties to fur­ther de­velop and broaden the list of re­form mea­sures, based on the cur­rent ar­range­ment, in close co­or­di­na­tion with the in­sti­tu­tions in or­der to al­low for a speedy and suc­cess­ful con­clu­sion of the re­view.”

IMF Man­ag­ing Direc­tor Christine La­garde, in a let­ter to Di­js­sel­bloem, echoed the find­ing that the Greek pro­posal was “suf­fi­ciently com­pre­hen­sive to be a valid start­ing point,” but went on to note that the plan has sub­stan­tial prob­lems. “We note in par­tic­u­lar that there are nei­ther clear com­mit­ments to de­sign and im­ple­ment the en­vis­aged com­pre­hen­sive pen­sion and [val­ued-added tax] pol­icy re­forms nor un­equiv­o­cal un­der­tak­ings to con­tinue al­ready-agreed poli­cies for open­ing up closed sec­tors, for ad­min­is­tra­tive re­forms, for pri­va­ti­za­tion, and for la­bor mar­ket re­forms,” she wrote.

Euro­pean Cen­tral Bank Direc­tor Mario Draghi also agreed to the “suf­fi­ciently com­pre­hen­sive” lan­guage, but added, “[W]e will have to as­sess dur­ing the re­view whether mea­sures which are not ac­cepted by the au­thor­i­ties are re­placed with mea­sures of equal or bet­ter qual­ity in terms of achiev­ing the ob­jec­tives of the pro­gram.”

The ap­proval al­lows the process of ex­tend­ing the Greek bailout to move for­ward, but it is far from clear that Greece and its cred­i­tors have re­ally found a path to a last­ing deal.

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