The agreement with Greece and the challenges ahead

The acrimonious negotiations on Greece’s future that took place in Brussels last week left huge uncertainties, with questions focusing on whether Athens will respect the laboriously reached compromise. The sticking point is not just the financial content of the negotiation, since the burden of the Greek debt is relatively low given the favorable conditions already in place. The real doubt is whether the compromise is politically compatible with the Greek rhetoric about its democratic sovereignty.

The tug of war between Greece and the Eurogroup

The alternatives offered to Athens—but potentially to all other European countries—between leaving the euro and reneging on its electoral promises have been interpreted in Greece as an obligation to sacrifice national sovereignty under Europe’s pressure. The aggressive rhetoric in Athens’ platform, and some exceedingly harsh tones by Greece’s interlocutors in the Eurogroup, made relinquishing national prerogatives—a consequence of high-indebtedness rather than of European strait-jacket —even more painful. Ultimately, this tension will cast a long shadow on the enactment of the agreements.

The tug of war between Brussels and Athens actually ended ambiguously. The Greek government had to swallow specific commitments dictated by the partners, but from the beginning it tried to sell the agreement back home as a victory. The political contradiction between the international commitment and national consensus was immediately evident and is bound to become acute in the next months, when words will need to be followed by parliamentary decisions.

It may sound surprising, but Greek Prime Minister Alexis Tsipras is going to face a “Monti-moment”: an attempt to re-balance the scales and reform the long-standing materialistic habits of his country within a few months, with no concrete help from the European partners and in a fragile economic environment. The Italian experience of former Prime Minister Mario Monti in 2012 has shown how difficult and politically thankless this effort can be.

After the Eurogroup harshly called on Athens to stick to the austerity-program, the new Greek government had to send to Brussels a list of reforms that moved its political front away from the European battlefield and straight into the domestic one. Tsipras does not want to fight against Berlin and the troika—the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF)—anymore, but rather against his domestic economic enemies: tax evasion of oligarchs, corruption of local officials, illegal foreign transfers of capital, tax advantages in trading raw materials, energy smuggling, and the underground economy. These and other characters of Greek society have hindered its development for decades and made the economic system so unjust that generous welfare countermeasures became indispensable and brought public expenditure out of control.

A number of studies in economic theory, although sometimes hasty and oversimplified, support the idea that institutional weakness is the main cause behind the economic and technological backwardness of a country. Unfortunately, beyond common sense, there is also an ideological component. This moralistic approach holds that that weak economies are reflections of disordered societies and consequently their political representatives have less right to be heard and respected when they are confronted with the governments of countries with stronger economies.

There is a contradiction in the reasoning behind the balance of powers of the Eurogroup. In order to reform countries whose institutions are dysfunctional, whose judicial system works badly, or whose public administration is inefficient, it is essential that the government can at least leverage on public consensus. As seen in past years in Italy and other countries, economic depression can easily derail political efforts.

Tsipras enjoys no solid parliamentary majority. His party, Syriza, is a heterogeneous coalition that failed in the past to meld its components into one single party. The government coalition with the right-wing ANEL Party is also ideologically uneven. Now that the battlefield has moved back from an anti-euro campaign to the domestic political front, the left-right distinction becomes important again. Tax policies may open a rift in the government as well as in the society, and rekindle capital flight.

Prime Minister Tsipras’ precidaments

The Eurogroup underestimates Tsipras’ predicaments. It only offered more flexibility on the budget this year. But very little has been proposed for bringing European investments back into the Greek economy. The distrust is evident: the extension of the program for four months, instead of six, means that Athens has to negotiate a new program by June just when it will be in a position of weakness. In June it will need to repay the ECB loans that keep it afloat. The list of reforms is still subject to approval by the troika. Each disbursement of EU aid will be contingent on the go-ahead of EU-ECB-IMF based on the fulfillment of the program.

The Greek state’s financial problems remain unchanged, and under such pressure the parliament in Athens will have to translate the agreed reforms into laws by the end of April. If the new Greek government respects the Brussels’ agreement, then the internal cohesion of the government coalition will be severely strained, weakening its political drive. If the government instead violates the agreements, then European institutions will denounce Athens as an unreliable partner, wind back the financial lifelines, and ultimately force the country out of the eurozone.

In either case, the political implications are bound to be huge, reopening the complex question of the compatibility between national democratic sovereignty and European integration. Ultimately, in a European democratic context that remains incomplete and still in search of definition, a new alignment between the individual nations and the European institutional powers could emerge.

Tsipras needs to clear the political contradiction that he is facing: he won the election with promises to revise the country’s existing agreements with the European institutions. In the midst of the harsh clash with Europe, Tsipras last Tuesday restated that his government intends to honor these campaign promises. The Greek Parliament has now been called to vote on reform measures that derogate from the earlier agreements with the troika. The contrast with the conditions imposed by the other European governments, through the Eurogroup, is substantial. Athens has been called on to maintain the reforms; to accept any new measures even if they do not impact the deficit; to ensure that it will pay off its debts; to cooperate with the troika; and to bring the agreed-upon program to fruition.

In many other cases during the euro crisis, national democracy has had to deal with issues of European compatibility: referenda (Ireland and Greece), elections (Spain and Italy), judgments of constitutional courts (Germany and Portugal) have all been subject to a tug of war between the capitals and Brussels. But never has such a radical confrontation appeared. Tsipras now seems forced to cave in and accept an extension of the existing program, but he remains egregiously ambiguous about compliance.

The fundamental flaws in Athens’s strategy

From the beginning, stuck between threats and inexperience, Athens’ unilateral strategy had fundamental flaws. Tsipras used two levers: The first was the threat that a failure of the negotiations and ensuing a “Grexit” from the monetary union would pave the way for exits by other countries. The second lever was the democratic legitimacy of the government in Athens, which, unlike the Eurogroup, was elected by popular vote and is acting on the basis of an explicit mandate. However, 70 percent of Greeks are actually against leaving the euro. The democratic mandate thus does not justify a Grexit, the only option that would make the Greek negotiating position formidable. The potential threat is also reduced by measures to protect the euro area enacted by the ECB. Finally, other governments that have adhered to the adjustment programs resist any exemptions for Greece. The Greek government has also underestimated the interest of other Eurogroup countries to use negotiations with Athens as a showcase for exposing the risks and inanity of populist party agendas, which also threaten their power at home.

Even if a majority of Greeks would prefer to abandon the euro rather than accept agreements which they understandably consider unfair, claiming a right to defend Greek democracy from the intrusion of European technocracy is questionable. After all, Athens’ position is based on Syriza’s domestic campaign promise to charge other European citizens for easing the financial conditions in Greece. The democratic value of such a promise, made unilaterally without consulting the European interlocutors who would pay the cost, is highly disputable.

We are at a crucial point of a monetary union that finds itself in a context where democratic requirements are visible in the national framework and elusive in the European one. The Eurogroup is a forum in which the interests of its individual governments, all legitimized by democratic elections, should be compounded. However, none of the governments is asked individually to represent the common interest of the area. The common interest should be represented instead by the European Commission. However, it is not a negotiating partner. The confusion is such that at the Eurogroup summit, a document attributed to the commission—probably only a suggestion on how to approach the negotiation—was maliciously leaked from Athens. It was quickly shelved after the publication of a separate document that was much more hostile toward the Greek requests was released instead by the Eurogroup (and rejected by Athens).

The vagueness of the commission draft, devoid of the essential conditions for the consent of the other governments, reinforced the intransigence of the Eurogroup. Unfortunately, it questioned whether community decisions can be more effective than those based on the balance of power between stronger and weaker governments. Commission President Jean-Claude Juncker had to retreat or risk a confrontation with German Chancellor Angela Merkel, bitterly revealing that power in Europe is still held by big national governments and not Brussels. Juncker’s European legitimacy—as the explicitly chosen nominee of the party that won the European Parliamentary elections—matters little.

Moreover, it’s hard to say that the conditions that were imposed on Athens were not politically justified in terms of democratic debate in Europe. After all, the decision of the Eurogroup is the result of a majority vote among the governments and the European debate that accompanied the decision was oriented along the conventional left-right cleavage, with the prevalence—again based on the adoption of a majority principle—of the fiscally conservative policies that currently inspire most European governments. However, democracy is not the rule of the majority over the minority, even when it is represented by an undisciplined country.

Complications of the Eurogroup agreement

The question of democratic legitimacy is complicated by the fact that the Eurogroup agreement does not affect Athens only. It is subject to approval by other parliaments, beginning with the Finns, who have scheduled two extraordinary sessions in March, and therefore requires that the Greek agreement is defined by the end of February. Likewise, the Greek request to change the substance of the current agreements would establish a new legal basis and require a new German parliamentary vote of approval.

Greek democracy had to confront another external time constraint: after the end of the month the ECB will not be able to extend aid to Greek banks without a political agreement ensuring Athens’ continuation in the euro. Should the ECB grant loans without such an agreement, and should the loans then not be repaid, the ECB losses would result in a fiscal redistribution from Greek taxpayers to those of other countries. This would go beyond the bank’s mandate and would question the legality of its actions. Athens has requested a bridge-agreement that should grant sufficient time—four months—to enable the new government to formulate its own reform policies that evidently had not been detailed during the campaign.

On the one hand, Athens’ unpreparedness has diminished its boasted electoral mandate. The unilateral intent to change the rules also brought to the fore the issue of mistrust that the Greek accounting falsifications have catapulted to the center of the crisis since 2010. Both factors contributed to relegate the sanctity of the Greek government’s democratic mandate, particularly in the inter-governmental negotiations. What’s more, transparency in this kind of negotiation is, at best, wanting. Athens leaked documents to influence the negotiations, while the European institutions provided their own background information to its familiar media. Each national government also briefed its domestic media to assuage the public opinion. All in all, these activities created a cacophonous media orchestra that echoed across the different time zones between Dublin and Athens.

Choosing a strategy of confrontation on the basis of their unilateral agenda, Tsipras and his Finance Minister Varoufakis have adopted a wrong strategy from the beginning. In a matter of only a few weeks, Tsipras needs to find a reasonable way to align Greece’s destiny with the rest of Europe. Denouncing the wounds to national sovereignty is a poor alibi. In the European countries, around 50 percent of gross domestic product is still intermediated by the state; taxation and social models vary widely among countries. States retain all the means to design policies that respond to their citizens’ preferences. The European institutions and the other governments—Germany in particular—should abandon the bullying attitude and eventually understand the critical nature of aiding Greece to aid itself.

Granting flexibility to Greece in the execution of the program is possible and highly desirable. But ultimately, the precondition is that everybody abandons unilateral positions. The Brussels negotiation certainly represented a warning to all the euro-critical parties aspiring to govern and to break ranks with Europe. Athens has shown that this is not an easy mission. The negotiation was also a warning to countries not currently subject to the troika—like France and Italy—struggling to comply with the orthodoxy of the reforms. But the negotiation particularly emphasized the lack of a true European political union that makes even good compromises difficult to accept and implement. The vacuum of shared political responsibility offers too many alibis to national opportunists and makes the complaint about the end of democratic sovereignty completely misleading. Distrust can not be the sole basis of coexistence.