Showdown in Athens

"Will the United States, Germany, the rest of the European Union, the European Central Bank, and the International Monetary Fund -- collectively constituting the International Mafia -- allow the new Greek leaders of the Syriza party to dictate the conditions of Greece's rescue and salvation? The answer at the moment is a decided "No." -- William Blum, The Greek Tragedy, CounterPunch

"The Greek economy is finished." There is no power, no force within the Greek economy, within Greek society that can avert -- it's like -- imagine if we were in Ohio in 1931 and we were to ask: What can Ohio politicians do to get Ohio out of the Great Depression? The answer is nothing." -- Yanis Varoufakis, Greek Finance Minister

A disagreement over the terms of a deal to provide a bailout extension for Greece, has set the stage for a final clash between the Eurogroup and members of the Greek ruling party, Syriza. Although the agreement was approved on Tuesday when a list of reforms were submitted by Greek finance minister Yanis Varoufakis to the Eurogroup, Varoufakis believes that changes to the original program give him greater flexibility to implement policies that will end austerity, reduce the ailing country's primary budget surplus, and ease the humanitarian crisis that has persisted for six years.

Regrettably, no one at the ECB, the European Commission or the IMF shares Varoufakis's views on the subject. The so called "troika" thinks that Greece has signed on to essentially the same program that was in place before the negotiations, give or take a few cosmetic changes in the language. And because the program is the same, they think Varoufakis should stick with the same policies as his predecessor and ignore mounting public opposition to austerity. Given the irreconcilable differences between the two parties, there's bound to be a violent confrontation in the near future that will lead to heated recriminations and, eventually, a Grexit.

To illustrate the widening chasm between Varoufakis and the members of the Eurogroup, consider the fact that, going into the negotiations, Varoufakis was determined to end the bailouts and secure a "bridge" loan that would shield Greece from default for a six-month period of adjustment, after which basic changes to the current austerity regime would be re-negotiated. While the Eurogroup agreed to change the term "program" to "agreement" and "troika" to "institutions," in the minds of the EU finance minsters, the substance of the original deal, which was laid out in the hated Memorandum of Understanding, remained the same. Take a look at this excerpt from a letter from ECB president Mario Draghi and Eurogroup president Jeroen Dijsselbloem and you'll see how this is playing out:

"I assume that it is clear, that the basis of concluding the current review, and also any future arrangements, will be the existing commitments in the current Memorandum of Understanding and The Memorandum of Economic and Financial Policies (MEFP). In this context we note that the commitments outlined by the authorities differ from existing programme commitments in a number of areas. In such cases, we will have to assess during the review whether measures which are not accepted by the authorities are replaced with measures of equal or better quality in terms of achieving the objectives of the programme." (Naked Capitalism)

What Draghi is saying is that Varoufakis's changes will be put under a microscope to see if they conform with the memorandum which Varoufakis believes no longer applies. The way this will work on a practical basis, is that additional money will only be meted out incrementally depending on compliance with, you guessed it, the old agreement. In other words, Varoufakis will not have a four-month grace period to experiment with his pro-growth, anti-austerity economic policies. He'll be expected to toe the line from Day 1.

Varoufakis either doesn't understand what he signed or thinks he can implement his own plan without too much interference from the Eurogroup. Either way, there's probably going to be a confrontation given the vast disparity in the way the agreement is being interpreted. In a Tuesday interview with CNBC, Varoufakis said that the new deal is fundamentally different than the previous agreement. He said:

"Some people have been insisting that the program that we've been under must surely be the program that we shall remain under simply refuse to understand that this has changed. So they keep insisting that that program is still on-going. Let me give you a very simple number. The program that we challenged compelled to the Greek government to extract 4.5% of the primary surplus every year in a depressed economy. We've changed that. Now surely that is not dismissed as simply a non-event and it's business as usual, so it's not business as usual we have a fresh start and now what matters is to use the opportunity of that fresh start in order to build something good on top of it. And we will endeavor to do this." ("CNBC Exclusive Interview: Greek Finance Minister, Yanis Varoufakis," CNBC)

See? He sincerely believes that the old deal is history. But the troika, the Eurogroup, and the majority of people who have analyzed the new arrangement, disagree. They think everything is the same (which explains why critics on the right and left have repudiated the deal as a "climb-down, a capitulation and a sellout.)

In an interview with Nikos Hatzinikolaou on REAL FM, Greece, Varoufakis rejected the Memorandum while claiming that the new agreement represents "a huge success" in ending the "recessionary measures" that are needlessly prolonging Greece's Great Depression. Here's what he said:

Varoufakis: "The current government (Syriza) wants to say things with their name. I will explain it to you in very simple terms, Mr. Hatzinikolaou. As long as our debt is what it is, as long as Greece was bounded within this iron cage of primary surpluses that were impossible to achieve without killing whatever is left in the private sector, and as long we have a negative sign in investments (essentially, real investments), it was impossible to achieve this exit.

"What we are trying to do -- and have succeeded in doing so; it was a huge success, I'd say -- is to create a four-month bridge during which we achieve the following:

"First, the cancelation of the recessionary measures and the implementation of a transitional program we ourselves have made, one the Greek society will be able to withstand. This will help us negotiate during this four-month period a new contract between us and our partners with the goal of solving this system of three equations with three unknowns."

Hatzinikolaou: "Thus, we are talking about a new Memorandum?"