Greek funding crisis is averted – at least for now

On Tuesday, the stand-off between the new Greek government and its international creditors reached a temporary resolution as the euro group backed a reform plan proposed by Athens in exchange for a four-month extension of its loan programme.

The agreement – pending approval by national parliaments this week – gives breathing space to both sides, and averts an immediate funding crisis for Greece.

With the Greek bailout due to expire this Saturday, Athens was potentially facing a multibillion euro funding gap for the first time in five years.

This week’s agreement staves off a Greek insolvency crisis for now, though the precise status of the outstanding €7.2 billion due to Greece under its current bailout remains unclear.

European Union officials have said that disbursement of the remaining funds depends on a “successful completion” of the programme, with the first major review due in April.

Fragile agreement

The four-month loan extension may help to stave off market unrest in the short term, but the agreement reached by Athens and its international lenders is a fragile one.

By Wednesday cracks were already beginning to show in the new pact. The Greek energy minister, Panagiotis Lafazanis, said the planned privatisation of electricity company PPC and power grid operator ADMIE would not go ahead, apparently defying a pledge given by Athens in its reform proposal that it would not halt privatisations that were already in train.

In reality, the truth of the matter is much more ambivalent; while the official English-language version of the reform proposal states the government would respect the privatisation process “where the tender process has been launched”, the official Greek translation circulating speaks of respecting the procedure “where the process of submitting bids has begun”.

Painstaking process

Thrashing out such details will be the primary challenge facing Greece and its partners over the coming weeks as they work through the detail of the reform proposal agreed on Tuesday.

It promises to be a painstaking process. Labour minister Panos Skourletis said on Wednesday the next four months would be a period of "daily negotiations" for Greece.

But the temporary reprieve granted to the country this week also provides the opportunity for both sides to step back from the immediacy of the situation and reset the broader terms of the debate over Greece’s future in the euro zone.

Greek finance minister Yanis Varoufakis reclaimed some of the ideological ground on Wednesday in an interview with French satirical weekly Charlie Hebdo.

Returning to an argument promulgated by prime minister Alexis Tsipras ahead of the general election, he said racists and right-wing nationalists would be the real winners if Europe refused to listen to Greece's new anti-austerity government.

Political cohesion

The publication of those views in a magazine that was so recently confronted with the brutal reality of European extremism was a sobering reminder of the deeper issues at stake in the current Greek crisis – the deep ideological questions about what kind of Europe people want, and whether Greek has the moral and democratic right to demand a debt writedown.

As Greece and its lenders settle down to a period of behind-the-scenes negotiation over the specificities of its bailout programme, domestic politics will also play a key role in the next chapter of the Greek crisis.

One of the major challenges for Tsipras will be maintaining political cohesion within his government over the next few months.

As a coalition government, Syriza needs to maintain the support of its junior coalition partner, the Independent Greeks, who hold 13 seats compared to Syriza’s 149 seats, as well as the more radical left faction within his own party.

The next few months could see an emboldened New Democracy regain its voice as the government embarks on the inevitably difficult process of negotiating terms with its creditors.

Despite Syriza’s strong support in opinion polls, it is worth remembering that Alexis Tsipras’s party secured 36.3 per cent of the vote in last month’s election – a strong if not emphatic victory.

On Wednesday, Tsipras held a meeting of the Syriza parliamentary party in which he urged his party to support him. At the moment the Greek public and Syriza are prepared to back their prime minister, but whether that political support is sustainable as the negotiations intensify in the coming weeks remains to be seen.

As Greece seeks to renegotiate a follow-on loan arrangement with lenders ahead of a repayment cliff this summer, the last thing investors want is another general election.

Tsipras’s main task may be keeping his public and his government on side as he seeks to navigate his country’s relationship with its creditors over the next four months.