Syriza’s honeymoon over as Greece strikes debt deal with EU

http://www.theguardian.com/world/2015/feb/21/syriza-greece-debt-deal-eu-alexis-tsipras

Version 0 of 1.

With a deal, of sorts, to keep Greece in the eurozone, prime minister Alexis Tsipras marked his first month in office this weekend acknowledging that only now does the hard work begin.

Facing a 48-hour deadline to produce a list of reforms that could make or break his insolvent country’s future, the anti-austerity leader admitted the honeymoon was over for a government that had sent ripples of hope through Europe.

In a sombre address, hours after a dramatic meeting of euro group finance ministers in Brussels, Tsipras said that, while Athens under the stewardship of his radical left Syriza party had for the first time embarked on “real negotiations” with its creditors, a “long and difficult ” struggle lay ahead.

“We have won the battle but not the war,” he said. “We showed that Europe can be an arena of negotiation and mutually acceptable compromise and not an arena for exhaustion, submission and blind punishment … but negotiations did not end yesterday.”

Five years into Greece’s worst crisis in modern times, the relief was almost audible in the voice of its youngprime minister. Weeks after assuming power, his leftist-led coalition has endured a baptism of fire amid acceptance by inexperienced officials that they are learning on the job. With bailout funds expiring on 28 February, keeping Greece afloat and in the single currency – while not being seen to ditch the anti-austerity platform on which Syriza was elected – has been a balancing act of almost existential proportions. The programme, extended for four months under the agreement, stopped Greece from being shown the euro exit door but has come at a heavy price. Speaking to reporters after its announcement, Greek finance minister Yanis Varoufakis described the deadlines the new government had been forced to meet as “inhuman”.

The accord, in many ways, was not one that Tsipras would have chosen. The spectre of capital controls being imposed on Greek banks that have haemorrhaged funds as anxious investors have rushed to withdraw deposits is believed to have forced Athens’ hand. On Friday, as eurozone finance ministers were about to discuss Greece’s fate, the country’s central Bank announced that capital flight had reached €1bn (£739m) that day.

An estimated €20bn is believed to have fled local lenders since December, when Athens was plunged into political turmoil with parliament’s failure to elect a new head of state automatically triggering snap polls.

In the cafes of Athens on Saturday there was consensus that what the country had essentially agreed to was the best of increasingly bad deals that inevitably would have been on offer. “The government won time, it got a four-month extension to the adjustment programme, but it was a lousy deal, and that’s because this new government managed to antagonise the euro group, the German government, the European Central Bank, Spain and Portugal from the outset with its negotiating stance,” said Giorgos Kyrtsos, a Euro-MP with the centre-right New Democracy party. “And the response was to impose rules in a very strict manner … We have a huge financing gap that will present itself in the next few months,” he told the Observer. “It is a time-bomb. The government will not be able to service its debt and meet its government programme.”

Greece, still down to receive a last instalment of aid under its old bailout programme, has been told the €7.2bn tranche will only be disbursed once reforms are agreed and a review of its economic progress concluded at the end of April. In a huge concession, Athens accepted continued oversight of its finances by officials representing the country’s hated “troika” of creditors at the EU, ECB and IMF, albeit under a new name – the “institutions”.

It also reneged on demands for a write down of its monumental debt – at over 175% of GDP one of the largest in the world – and conceded that it would not take any unilateral measures that would wreak havoc on its fiscal stability. Tsipras, who at 40 is Athens’ youngest prime minister ever, was swept to power on promises to increase the minimum wage, reinstate employees fired from the state sector and ‘cancel’ the austerity that has impoverished more than a third of the nation at large.

“The agreement does not even include the term ‘humanitarian crisis,’” said Notis Marias, who represents the government’s junior rightwing partner, Anel, in the European parliament. “That worries me.”

While the pause button has been pressed on the Greek drama, it is not over. Haggling over reforms expected to focus on eradicating corruption, overturning the tax system and modernising Athens’dysfunctional public administration will take months – if, indeed, creditors accept them in preliminary form on Monday. And Tsipras will have to placate hard-left militants in his party while also selling the deal to disappointed voters. “Only now are we coming to crunch time,” says Dr Eleni Panagiotarea, senior research fellow at Greece’s leading thinktank Eliamep. “Tsipras has got the breathing space that he wanted but he is also faced with huge challenges and will be walking a very fine line. He will have to specify measures that will be painful domestically while keeping Greece’s partners on board. How he will do that when he has committed to not taking any move that will upset the fiscal balance is going to be very difficult.”