A Greece-EU deal? (an update after a tough weekend)

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It was a momentous weekend for Europe, and not in a good way. The deal will keep Greece in the eurozone at least a while longer, at great cost, and with little certainty about the future of either Greece or Europe.
-- Neil Irwin

Here is a roundup of links and summaries after a weekend that plenty of people were labeling as a "coup."

Greek Debt Crisis Deal Is Reached, but Long Road Remains, NYT:

Greece agreed to a deal with its European creditors on Monday after long and bitter negotiations, swallowing substantial new concessions in the face of imminent financial collapse and insistent demands from Germany and other countries that it prove it was worthy of a third bailout in five years.

The agreement, announced after a contentious all-night session among leaders of the 19 nations that use the European common currency, requires Greece to move quickly to adopt a host of economic policy changes and to allow close monitoring by Europe and the International Monetary Fund.

Key Points of the deal, BBC:

  • The Greek parliament must immediately adopt laws to reform key parts of its economy - by Wednesday. The reforms include: streamlining the pension system, boosting tax revenue - especially from VAT, liberalising the labour market, privatising the electricity network, extending shop opening hours
  • The eurozone agrees in principle to start negotiations on a loan package for Greece worth €82bn-86bn (£59bn-£62bn; $91bn-$96bn)
  • The loan will come mainly from the European Stability Mechanism (ESM) - the eurozone bailout fund. But the International Monetary Fund will also be asked to make a contribution from March 2016
  • A new trust fund will be set up, managed by Greece, with €50bn of Greek assets. It is a mechanism for paying off part of the total ESM loan.

Also, from an FT calendar:

[Greece] must also pass legislation to safeguard the independence of its domestic statistical agency and to enact parts of the eurozone’s 2012 fiscal compact that are not yet included in Greek law, such as setting up an independent fiscal council to monitor state spending.

Differing expectations

Barry Eichengreen, Project Syndicate:

Whatever one thinks about the tactics of Greek Prime Minister Alexis Tsipras’s government in negotiations with the country’s creditors, the Greek people deserve better than what they are being offered. Germany wants Greece to choose between economic collapse and leaving the eurozone. Both options would mean economic disaster; the first, if not both, would be politically disastrous as well.

... Economically, the new program is perverse, because it will plunge Greece deeper into depression. It envisages raising additional taxes, cutting pensions further, and implementing automatic spending cuts if fiscal targets are missed. But it provides no basis for recovery or growth. The Greek economy is already in free-fall, and structural reforms alone will not reverse the downward spiral.

Angel Ubide, PIIE.com:

If the Greek government shows ownership of the process and effectively implements all the prior actions required in the agreement, there will be OSI (official sector involvement, mostly a rescheduling of the official European debt with longer grace periods and maturities) by the year’s end. In addition, if all goes well, Greek bonds will be eligible for the ECB’s quantitative easing program of bond purchases, which should lower interest rates on Greek debt. This could create a policy mix of mildly tight fiscal policy (the path of primary surpluses has not been specified yet, though, and it may depend on the political commitment the Greek government shows: more commitment, less tightening), easier monetary policy and financial conditions, and reforms. Finally Greece will have a well-designed program, even if this happy result followed a messy process. The key reason why Greece’s earlier program led to such a large decline in growth was not simply that the deficit was massively reduced; the decline also resulted from the tightening of monetary conditions. A combination of tighter fiscal and monetary policies created a much bigger multiplier for deficit reductions on growth. This mistake is being avoided now.

Peter Kazimir, Amicable split with Greece is not the worst fate for eurozone, FT:

our European project is not perfect, nor is it yet finished. But it may well be the greatest political and economic achievement of the past century. The realities of domestic politics and national interest may from time to time collide with our joint vision but they by no means imply failure. On the contrary, experience shows us that we are all more prosperous and more secure when working together. My country’s economy is bigger by 10 per cent thanks to joining the euro.

Oxford Economics: "the scale of the capitulation now being forced on Athens is breath-taking, with Greece effectively being asked to give up fiscal sovereignty as the price of staying in the euro area."

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