Five months ago, the deal reached between the Syriza-led government and the Troika boiled down to this: the creditors could fix broad objectives, from tight fiscal policy to privatizations, but the Greek government would have the margin for maneuver to choose the policy mix with which to achieve these goals. Obviously this was a major climb-down for a party whose political purpose was opposing austerity. But lacking leverage, the Tsipras government took this medium-term deal in the hopes that it could at least consolidate its political support by making austerity less regressive and structural reforms less transparently plutocratic.
What we’ve just seen is this uneasy truce being shattered by the creditors. With a slow-motion bank run taking place in Greece, the creditors took the chance to take the hardest of lines in the most recent negotiations. And Syriza essentially folded. Their most recent proposals acceded to a severely intensified austerity, with no commitment by creditors to debt relief. The only caveat demanded was that the lowest pensions would not be cut and that the tax burden would be increased in a not-entirely-regressive manner: a mix of heavy VAT increases (with carve-outs for medicine, food, and electricity) and taxes on the middle class and corporations.
The government’s proposal for austerity with a human face was already a huge stretch: denounced by Syriza’s left and by angry pensioners in the streets, it would very likely have led to the party’s split. But even this plan was rejected by the IMF, who, without a hint of irony, suggested that taxes on business profits would be recessionary, and that the vast majority of the package should thus be spending cuts, rather than taxes.
It’s difficult to escape the conclusion that the creditors’ latest proposals were about regime change more than economics. The creditors had won a total victory, but were unsatisfied with a solution which didn’t eliminate even the fig-leaf with which the Syriza-led government would defend its political credibility. The last fragile pretense of sovereignty was repudiated: not only would its creditors set the objectives of Greek policy, but they would decide in detail the policies themselves. This was a bridge too far, and Tsipras pulled out of negotiations suddenly and declared a referendum on the Troika’s latest proposals, set for Sunday.
Putting the Greek Referendum in Context