The devil is in the document details

In January last year, just a few days before the general elections that led to SYRIZA forming a government with Independent Greeks for the first time, Alexis Tsipras was asked what he would do if German Chancellor Angela Merkel said no to his plan for debt reduction and less austerity. “There is not even a one-in-a-million chance that Merkel will say no,” he responded. It turned out those odds were not very accurate.

So, there is good reason to be concerned by the comments Tsipras made during his speech at SYRIZA’s congress on Thursday, when he insisted that his government would accept nothing less than the second program review, due to start this week, being completed at the same time that Greece’s lenders set aside their differences and agree on how to make the country’s debt sustainable.

“There is no more ‘We’ll see.’” Tsipras told delegates at the Tae Kwon Do Stadium in southern Athens, in reference to the eurozone’s tendency to want to put off any discussion until some national election or another is out of the way.

Evidently, the Greek prime minister believes that he has some leverage over the country’s lenders, that if he keeps his side of the bargain and completes the second review by implementing the reforms the institutions want, they will have no choice but to agree to debt relief, not just in terms of short-term measures that can be implemented straight away but also defining medium- and long-term ones that can be applied after the current bailout expires in 2018.

Perhaps, though, he is driven by the fear of suffering the same fate as his prime-ministerial predecessor, Antonis Samaras, who went into 2014 expecting that Greece’s creditors would live up to a pledge made at a Eurogroup meeting in November 2012 to adopt measures to reduce Greece’s debt.

Samaras saw this as the key to boosting his flagging premiership and securing his government’s tenure in office. The new actions to reduce Greece’s debt never arrived and Samaras lost his grip on power.

It could also be that Tsipras does not want to emulate Samaras by falling into what he sees as a debt sustainability trap. The premier has recently been talking up the possibility of Greece returning to international bond markets soon. The SYRIZA leader has marked out a clear roadmap leading to any bond issue. It would include a debt deal and the inclusion of Greek bonds in the European Central Bank’s quantitative easing scheme.

Perhaps Tsipras sees debt relief as such an important part of this process because he is mindful of the fact that the last Greek government bond issues took place in April (5-year) and July (3-year) of 2014, under the Samaras administration, and he believes this may have weakened lenders’ appetite for granting Greece any help. After all, if Athens can borrow from the markets to service its debt, why should it need restructuring?

Maybe, though, the issue is much simpler. Perhaps where Tsipras should be starting from is being absolutely aware of what has been agreed. If he is to learn from Samaras’s downfall, then this is a useful lesson to learn. Throughout his futile pursuit for debt relief in 2014, the former New Democracy leader chose to overlook the fact that the November 2012 Eurogroup decision had set out several conditions that needed to be fulfilled before Greece could qualify for further debt measures.

The government at the time focused on the achievement of a primary surplus, which Samaras clinched in 2013 – a year earlier than expected, as the key condition. However, there was more: “Euro-area member-states will consider further measures and assistance… if necessary, for achieving a further credible and sustainable reduction of Greek debt-to-GDP ratio, when Greece reaches an annual primary surplus, as envisaged in the current MoU, conditional on full implementation of all conditions contained in the program…”

The key in this statement was that Athens had to complete the second program, not just produce a primary surplus. The Samaras coalition, though, never achieved this. It ran out of the political will needed to conclude the bailout review in late 2014 or, according to another interpretation, the conservative leader thought he could teach the upstart Tsipras a lesson by letting him have a go at dealing with the troika.

Greece has learnt the hard way that paying attention to the small print can make a very big difference. It is no different in the current case. The government believes it secured a cast-iron guarantee for further debt relief at May’s Eurogroup. It is worth revisiting the document to see exactly what it says, particularly regarding the medium- and long-term measures that Athens hopes can be specified as soon as the imminent review is concluded.

“For the medium term, the Eurogroup expects to implement a possible second set of measures following the successful implementation of the ESM program. These measures will be implemented if an update of the debt sustainability analysis produced by the institutions at the end of the program shows they are needed to meet the agreed gross financing needs benchmark, subject to a positive assessment from the institutions and the Eurogroup on program implementation,” says the May document.

“For the long term, the Eurogroup… agrees on a contingency mechanism on debt which would be activated after the ESM program to ensure debt sustainability in the long run in case a more adverse scenario were to materialize,” it adds.

There are some key phrases in this document, such as “at the end of the program,” “[if] they are needed” and “in the long run.” Undoubtedly, Greece’s case for these measures to be defined now will be strengthened if it breezes through the second review, as Tsipras suggested on Thursday, and the International Monetary Fund takes a determined stance over debt relief in order to join the program later this year. Perhaps even the European Central Bank will add some pressure.

What counts against Tsipras’s hopes for a conclusive settlement is that the history of the euro crisis has consisted of finding a fudge and kicking the can. What are the odds on that changing anytime soon, especially with a key player such as Germany being unwilling to make any drastic commitments ahead of next year’s federal elections? We’ll see.