Unlikely Winners of Greece's Surrender

FEB 26, 2015 2:00 AM EST

By Mark Gilbert

Bloomberg

The Greek government's apparent capitulation in debt negotiations with its euro partners makes it less likely that Athens will be forced out of the common currency. The real winners, though, are the European governments who have stuck with spending cuts in the face of mounting domestic opposition. They don't have to worry about a successful austerity renegade giving ammunition to their opponents.

Rightly or wrongly, Greece's interlocutors displayed a united front on refusing to cede to Greece's demands throughout the talks, with 18 euro members allied against one. Rightly or wrongly, Germany was indifferent to whether Greece stayed in the euro or not, willing to countenance a Grexit rather than surrender to the new Syriza-led administration, the person said. And, rightly or wrongly, any changes Greece makes to its existing commitments will probably have to be fiscally neutral, with the government having to show exactly how it plans to meet its pledges; unquantifiable measures, such as promising to collect outstanding taxes, won't make the grade.

Instead, Greece has diluted at least five of its key electoral promises in the face of implacable German-led opposition to its stance. There's been no extension of the country's debt repayment timetable; Greece is still a ward of the troika, even if its guardians now go by a different name (they're now referred to as the "institutions"); there's no rollback of the previous government's economic reforms; cash allocated to the domestic banking system won't be diverted to alleviating economic hardship; and the need to achieve a sensible budget surplus has been acknowledged.

Those concessions might prove to be a tough sell for Syriza at home, given its election strategy. But they're very helpful if, for example, you're Spanish Prime Minister Mariano Rajoy and you face an election by the end of the year. Rajoy's People's Party has about 30 percent of voter support in the most recent opinion polls, with the anti-austerity Podemos part on 26 percent; other recent polls have shown Podemos in the lead.

If Greece had been able to wring concessions from its euro peers, opposition parties in other countries -- Portugal also has elections this year, Ireland goes to the ballot box next year, while Italy's coalitions are notoriously unstable -- might have used them as evidence that abandoning austerity is an acceptable economic strategy within the euro region. Instead, Germany has underscored to voters across the continent -- again, rightly or wrongly -- that the euro zone won't accommodate all economic points of view.

To contact the author on this story:

Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:

Cameron Abadi at cabadi2@bloomberg.net

http://www.bloombergview.com/articles/2015-02-26/greece-s-capitulation-is-comforting-for-incumbent-eu-governments