The Greek deal – “Timeo Danaos…”

In Virgil’s great epic The Aeneid, the story of the fall of Troy, he makes Laocoön, one of the Trojan priests, warn against accepting the Greek offer of a wooden horse.  “Timeo Danaos et dona ferentes”, he cries, “I fear the Greeks even when bearing gifts”.

Three millennia later, it is Greece that is being offered the gifts, as the Eurozone finally put together a new bailout package on Sunday night (and Monday morning) for the bankrupt Greek economy.  And what an offer – instead of the €7-10 bn that Greece originally sought, or the €30 bn the IMF thought might be needed, the full package that was agreed and is now on offer to Athens could be as much as €85 bn.  How should the Greeks feel about this largesse, this generous gesture of solidarity from their Eurozone partners?  And how should the rest of us interpret it?

We know what the leaders of the Eurozone would want us to say.  I think it goes a bit like “Hurrah hurrah, ring the bells, Peace in our time and all’s well that ends well”.  Note that this is not the same as they themselves celebrating the result – they know how difficult it was to achieve agreement, let alone how challenging it will be to implement it.  And they also know how damaging the process has been, and it remains to be seen how long-lasting that damage will be.  However, for the moment the Eurozone has an agreement, and Europe’s leaders desperately need it to be seen in a positive light.  In the circumstances it would be churlish not to welcome it and wish it all the best.

But (and it is not a small but), the agreement depends on quite a lot of pieces falling into place.

In the first place, the agreement is predicated on the Greek government passing by Wednesday six bills which go completely counter to the government’s plans and stated ambitions.  This is actually not as much of a problem as it might seem, and the Greek parliament is I would suggest almost certain to comply – even if some Syriza MPs find the climb-down too much and rebel, there are enough MPs in the other parties who will accept the realities of the situation to help Tsipras ram the required legislation through.

A bigger question might be how the Greek people react to their parliament so blatantly ignoring the result of the referendum held only 8 days previously.  In our last article we commented that the Greek attachment to democracy was one of the few unalloyed positives to emerge from this whole saga, and it is to be hoped that this belief in and support for the democratic process is not damaged by the abuses visited upon it.

In the second place, the agreement is predicated on the package also being passed by a number of other EU parliaments, including Germany’s and Finland’s.  Again, there may be much resistance, and talk of the wisdom of committing yet more of their taxpayers’ money to what many in northern Europe think is a lost cause, but realistically, both parliaments will probably do what their leaders ask, gritted teeth and all, simply to avoid being the cause of disaster.

In the third place, and longer term, the agreement raises the legitimate question of whether the Greek authorities can actually implement the measures they have agreed to.  This is where the question‑marks start to become more troubling, because no Greek government has found even the terms of the first and second bail-outs easy to comply with, and the terms of the current bail-out are far more specific, far harsher than the earlier ones.  On the one hand, it is just possible that this makes compliance more likely (on the grounds that There Is No Alternative), but on the other hand, without any “wriggle-room” the authorities in Athens (and indeed those monitoring their efforts in Brussels) will not have the capacity for creativity which seems such an integral part of so much of the EU.

In the fourth place, and more specifically, the agreement depends on whether the Greeks can find the €50 bn of public assets they are committed to selling.  This is a privatisation programme an order of magnitude larger than any country has ever attempted before, and already questions are being raised as to whether this amount of marketable assets actually exists in the Greek public portfolio.  And even if they do, selling them will be an enormous undertaking, not least as an administrative exercise.

Even if the assets are found, there remains the question of whether buyers can be found for them, and can be persuaded to pay a fair price.    The nature of the sales – fire-sales by a bankrupt seller with a gun to their head – is not the most propitious scenario for raising funds at a fair price for the Greek government, and all buyers will have at the back of their mind that the assets they are buying, which by their nature will be domiciled in Greece, run the risk of being turned into drachma-based assets if the bail-out fails and Grexit once again looms.

And in the fifth place, the agreement, and all of the above analysis, will be worthless if the ECB does not play its part and does not act fast to help the Greek banks re-open and reliquefy the Greek economy.  This will probably require an increase in the amount of lending to Greek banks, which it is well known the ECB is reluctant to do.  But, just as we do not expect the German and other governments to pull the plug so soon after the agreement has been forged, so we doubt the ECB has the stomach for being the villain of the piece.

And even if all the above conditions are met (and as we have explained, while some are perhaps not as difficult as they seem, others really are by no means guaranteed), Greece will still have far too much debt, a shrinking economy, no strategy for growth, and no hope of servicing let alone paying back the borrowings.  If in addition one factors in that we have not exactly seen an outbreak of sweetness and light, brotherly love and so on at the heart of the Eurozone, it is not surprising that it is not just the sceptics who are asking “If this is a success, then what would failure look like?”

The reality is that all sides know that the fundamental issues have still not been resolved.  This deal merely (and at huge cost, not least to Franco-German relations) kicks the can down the road one more time.  But the successive kicks send the can less and less far each time, and cost more and more energy and pain.  The real issue is that although everyone knows this, no-one wants to be the person who finally declares Game Over.  So the ECB will not be the one to pull the plug.  And Greece will not, cannot walk away.  And Merkel prefers to prioritise the European Dream above all else, despite those in her government who considered Grexit both the more logical and perhaps even the kinder solution for Athens.

Of all of the sub-plots in this game, it is the last that many people will find concerning.  Merkel’s determination not to preside over a Grexit, while laudable in itself, was so strong that it may have clouded her reasoning.  For it implies that either she believes Greece can pay, in which case one must have really serious doubts about her economic judgment; or that she knows it cannot but cannot admit it to her people, in which case she is being both weak and cruel.

Interestingly, it is probably France that has emerged from the last few days the best.  It is possibly true that they had not only Greece’s interests in mind when seeking compromise and easier terms but also their own, but even so, it is François Hollande that has looked the most like a statesman – and it is a rare EU crisis which can achieve that!

And so, to return to Virgil, and his famous comment on Greeks and gifts.  Only this time, one should perhaps instead say “Timeo Danaos et dona accipiendes” – “I fear for the Greeks receiving gifts”.