Ready to Compromise?

The Greece cabinet is ready to compromise on tax hikes and pensions. But what does "compromise" really mean? Will Germany go along?

The devil is in the details and we have no details.

But we do have this headline Tsipras Seeks to Rush Austerity Package Through Greek Parliament.

The Greek government is preparing to rush a package of economic reforms and austerity measures through parliament as early as Friday in a bid to convince its eurozone creditors it is committed to striking a deal for a third bailout that would save it from crashing out of the euro.

Greece’s cabinet approved the plan, which includes increases in value added tax and savings from public pensions demanded by creditors, on Thursday evening before sending it to eurozone authorities.

“We are ready to compromise,” Greek prime minister Alexis Tsipras told his cabinet colleagues, Greek media reported.

But Mr Tsipras could see his anti-austerity Syriza party split over the promised reforms. Greek media reported that Panagiotis Lafazanis, energy minister and leader of the hard-left faction, told his cabinet colleagues he could not support the plan. Syriza is to hold a meeting of its MPs early on Friday morning.

Creditors are waiting for detailed reform proposals from Athens before deciding whether the Syriza-led government has given enough ground to restart bailout talks. If eurozone finance ministers meeting on Saturday conclude that Athens has not gone far enough, European leaders will gather the next day to make preparations for its exit from the euro.

Donald Tusk, the European Council president who has been among the toughest critics of Athens’ prevarication in recent weeks, said he had spoken to Mr Tsipras on Thursday and agreed any bailout deal should include debt relief for Greece.

“I hope that today we will receive concrete and realistic proposals of reforms from Athens,” Mr Tusk said. “The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors. Only then will we have a win-win situation.”

Valdis Dombrovskis, the European Commission vice-president overseeing its response to the Greek crisis, said “there is some willingness to look at this issue” in the bloc. Debt relief was unlikely to come in the form of a “haircut”, however, and more likely via an extension of the timeframe in which Greece would have to repay its debts to fellow eurozone members.

But Mr Schäuble said the leeway for further debt relief for Greece — after a restructuring in 2012 — was “very low”.

Michel Sapin, France’s finance minister, urged his eurozone counterparts not to underestimate the costs of Grexit.

“What’s costlier? That Greece exits the eurozone and defaults on all its debt? Asking the question is answering it,” Mr Sapin told Radio Classique on Thursday. “A deal is the best solution for Greece and Europe.”

Clearly some ministers are ready to compromise, others much less so. But we do not have specific proposals and Greece needs another 60 billion euros or so according to the IMF.

Is Germany ready for compromise? The Greek parliament? The eurozone finance ministers?

If the answer to all three is yes, then we have a deal, and likely a better one for Greece than it had two weeks ago.

But will it be a good deal?

I suggest no. Greece is better off doing needed reforms and simply declaring all of the debt fostered on it as "odious".

If another deal is signed, Greece will remain a hostage, with terms yet to be seen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com