Wednesday, February 18, 2015

Greece said No, or Maybe

Paul Krugman is outraged about the proposal that Eurozone finance ministers ("Eurogroup") put in front of Greece --

On my reading, here’s the key sentence: "The Greek authorities committed to ensure appropriate primary fiscal surpluses and financing in order to guarantee debt sustainability in line with the targets agreed in the November 2012 Eurogroup statement. Moreover, any new measures should be funded, and not endanger financial stability."

Translation (if you look back at that Eurogroup statement): no give whatsoever on the primary surplus of 4.5 percent of GDP. There was absolutely no way Tsipras and company could sign on to such a statement, which makes you wonder what the Eurogroup ministers think they’re doing.I guess it’s possible that they’re just fools — that they don’t understand that Greece 2015 is not Ireland 2010, and that this kind of bullying won’t work.

But there are two problems with this interpretation. First, the very next sentence of the quoted draft is:

On this basis the Greek authorities expressed their intention to request a six months technical extension of the current program as an intermediate step. This would bridge the time for the Greek authorities and the Eurogroup to work on a follow-up arrangement.

So the proposal was not that Greece was run large primary surpluses forever. It was that it would say enough along those lines to get a very short extension of the current program while a new one is being put together.

Second, there's the mysterious alternative "Moscovici Plan" which Greece says it was willing to accept all along. And what are the corresponding sentences in that draft? --

Greece will fully respect its commitments to partners to ensure sound and sustainable public finances, by reaching and then sustaining sizeable primary balances. The feasibility of reaching the fiscal target for 2015 will be considered in light of evolving economic circumstances. Measures for reducing the debt burden and achieving a further credible and sustainable reduction of the Greek debt-to-GDP ratio should be considered in line with the commitment of the Eurogroup in November 2012. At the same time, the Greek authorities reiterated their unequivocal commitment to the financial obligations to all their creditors.  

There's nothing that stands out about those sentences as weaker than the version that has Krugman outraged -- both refer to the 2012 Eurogroup statement -- and in some respects they are tougher (note e.g. "sizeable primary balances").  Greece may well be on its way of the Euro. But Monday's meeting was sufficiently confusing that pitching grand theories upon it -- either that Greece is less wimpy than Ireland, or that the Eurozone is trying to kick them out of the Eurozone -- is a risky enterprise.