Reading nothing 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 four-month 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 wish-list 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.
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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.
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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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