Varoufakis and Krugman

Afternoon Must-Read: Yanis Varoufakis: Confessions of an Erratic Marxist in the Midst of a Repugnant European Crisis by Brad DeLong

Greece Did OK by Krugman

Now that the dust has settled a bit, we can look calmly at the deal — if it really is a deal that survives through tomorrow, which some people doubt. And it’s increasingly clear that Greece came out in significantly better shape, at least for now. 

The main action, always, involves the Greek primary surplus — how much more will they need to raise in revenue than they can spend on things other than interest? The question these past few days would be whether the Greeks would be forced into agreeing to aim for very high primary surpluses under the threat of being pushed into immediate crisis. And they weren’t. 

One way to see this is through careful parsing of the language, as done here. That’s quite useful. But I’d argue that in an important sense we’re past that kind of word-chopping. Instead, we need to think about what happens substantively from here out. 

Right now, Greece has avoided a credit cutoff, and worse yet an ECB move to pull the plug on its banks, and it has done so while getting the 2015 primary surplus target effectively waived. 

The next step will come four months from now, when Greece makes its serious pitch for lower surpluses in future years. We don’t know how that will go. But nothing that just happened weakens the Greek position in that future round. Suppose that the Germans claim that some ambiguously worded clause should be interpreted to mean that Greece must achieve a 4.5 percent of GDP surplus, after all. Greece will say no, it doesn’t — and then what? A couple of years ago, when all the VSPs of Europe believed utterly in austerity, Greece might have faced retaliation thanks to wording issues; not now. 

So Greece has won relaxed conditions for this year, and breathing room in the run-up to the bigger fight ahead. Could be worse.