Alexander Mercouris
by Alexander Mercouris


Since Greek was granted a 4 month extension there has been a sustained attempt both within Greece and in the English speaking world to claim that it is Syriza rather than the EU hardliners that came out ahead on points.  This is the view of Tsipras but also the view of such Anglophone commentators ranging from Jack Rasmus on the far left to Paul Krugman on the liberal left and to Ambrose Evans-Pritchard on the right.

Supposedly, Syriza won some flexibility on the supposedly key issue of the size of Greece’s primary budget deficit, which was a small but significant victory over the EU hardliners.

Let me say clearly that given the circumstances in which Syriza found itself, I do not think it had any realistic alternative other than to negotiate the 4 month extension on the terms that it did.  The alternative would have risked with high probability both a Grexit and a total collapse of the Greek banking system, which the Greek people were at the time of the extension simply not prepared for.

However I have to say that I think claims that Syriza won any sort of victory are overdone.  It is clearly the case that Syriza saw off the insane proposal by Schauble and the hardliners that it stick without deviation to the existing bailout plan.  However what people who talk of this as a “victory” overlook is that greater flexibility on the size of the primary budget surplus was (1) not what Syriza promised the Greek people during the election.  What Syriza promised the Greek people was a reduction in the overall level of Greece’s debt; and (2) that it is highly likely that the outgoing government of Antonios Samaras would also have negotiated greater flexibility on the size of Greece’s primary budget deficit without any of the drama and ill-feeling we have seen over the last few weeks.

The point to understand is that unless there is a restructuring of Greece’s debt, either by a lengthening of the terms of repayment or through an outright debt write-off (surely the most logical option), then flexibility on the size of the primary budget surplus is limited since the whole point of setting it at the ridiculous target of 4.5% of GDP is to generate a sufficient surplus to start paying off the debt.  Needless to say, given the size of the debt, on the existing terms of repayment that would mean running such a surplus for decades, something, which would utterly devastate whatever is left of Greece’s economy if it were done, which of course it won’t be.

As it happens, I think it is most unlikely that Greece is actually running a primary budget surplus at all.  Output appears to have fallen sharply in the last quarter of 2014 (with the fall beginning before the election was called) whilst tax receipts seem to have fallen off a cliff since the start of the year.  Whether Greece ever did run a primary budget surplus for any part of 2014 (and my brother for one believes that claims that it did were smoke and mirrors) I think it is very unlikely that it is doing so now.  With the economy in the state it is in, I think that any plan to run a primary budget surplus at whatever level so that Greece can remain in the Eurozone and pay its debts is anyway an utterly fantastic one.  I am sure that Yaroufakis at least is clever enough to understand this.

In my opinion the only realistic way forward is for Syriza to use whatever grace period it has got (and it may turn out to be a lot less than 4 months) to prepare the Greek economy and the Greek people for a default and (since the European authorities in their great unwisdom have decided that a default is incompatible with membership of the Eurozone) for a Grexit.

I hope and pray that Syriza realise this since it seems to me the only way forward.  The information I am getting from people in Greece (including my parents) is unrelievedly grim, with people now running out of money to pay for even basic necessities and with the economy essentially at a standstill.  Support for Syriza remains exceptionally strong but this cannot continue for much longer.

The Essential Saker: from the trenches of the emerging multipolar world