ROME — For the past month, as Greece once again emerged as a threat to the global economy, a new generation of populist Greek leaders vowed to shatter Europe’s austerity politics in what threatened to become an unbridgeable divide with the European establishment, especially Germany. There were insults, predictions of calamity and accusations of double-dealing and deceit.
Until Tuesday, when, with surprising ease, Greece and Europe suddenly made nice — at least for the moment.
Eurozone finance ministers and other creditors agreed to extend the Greek bailout program for another four months, with caveats, after signing off on a reform plan hurriedly put forward by the Greek government. A tough confrontation that symbolized the polarized politics and deep economic divisions of Europe had taken a Kumbaya pause.
It will probably not last long, and the fact that both sides are claiming victory underscores the fuzziness and fragility of the new agreement. Tuesday’s accord does not resolve Greece’s dire economic situation and pushes many of the major problems down the road. Nor has this latest Greek crisis forced Europe’s leaders to address the fundamental problems of the economic and political structure of the eurozone.
Yet the political dynamic has undeniably changed. The new Greek prime minister, Alexis Tsipras, and his leftist Syriza party were elected last month as insurgents, promising to end austerity in Greece and inspire a broader backlash across Europe. But to avoid a banking crisis and keep the loan money flowing, Mr. Tsipras discarded his confrontational stance and is now committed to pushing through structural reforms and tougher tax collections: positions long advocated by European creditors.
In turn, Mr. Tsipras is claiming a measure of victory, symbolic and tangible, by forcing Europe to revise, if modestly, the terms of the bailout program and winning some commitments to address the “humanitarian crisis” created by austerity. His close advisers say the bigger goal is to deliver quickly on reforms to earn credibility so the government can negotiate a new bailout agreement in June, with terms more favorable for Greece.
“We should always keep in mind that this program is for a short period of four months,” said a senior adviser to Mr. Tsipras, who agreed to speak only on the condition of anonymity to discuss internal policy. “The government has been elected for four years to carry out its program.”
Greece has endured years of hardship and high unemployment, with many Greeks blaming the belt-tightening requirements attached to the country’s 245-billion-euro bailout for the country’s economic collapse. Mr. Tsipras must now balance the demands of the country’s European creditors — theEuropean Commission, the European Central Bank and the International Monetary Fund, known as the troika — with the expectations of voters who rallied to his promises to rehire thousands of fired public workers and pursue other leftist, pro-growth policies.
Some analysts note that the Greek leftists and the European creditors have fairly broad areas where they can agree, especially in cracking down on tax evasion by the wealthy and on corruption. Syriza was elected without the support of many of Greece’s most powerful business networks, and the party had vowed before the elections to close loopholes and shift the tax burden away from the poor toward the rich. Unlike past Greek governments, which often had ties to these elites, Syriza is better positioned to make real change, analysts say.
“The most important challenge, a make-it-or-break-it thing, is their ability to deliver on tax evasion, corruption and smuggling of tobacco and oil,” said George Pagoulatos, a political analyst and professor at Athens University. “If they manage to make a difference on that, they will be able to raise the revenues that will allow them to fund their social programs and also be financially sound at the same time.”
Mr. Tsipras is showing success in reining in dissent within his party. Some party officials had blasted his decision on Friday to sign a tentative agreement with creditors. But on Tuesday, there was no immediate political outcry in Greece. Greek television reported that some members of Mr. Tsipras’s cabinet expressed objections to some terms of the reform proposal during a closed meeting on Tuesday, but no ministers made any public statements criticizing the document.
Even so, some analysts predicted that Mr. Tsipras would face a difficult political challenge. “He’s really between a rock and a hard place now,” said Carsten Brzeski, the chief economist in Germany for ING. “It will be very hard for him to please both sides of this equation.”
Mr. Brzeski added: “There is really very little he can sell to his electorate that is linked to his election campaign, apart from a few things like an increase in the minimum wage and a slower pace of privatization. His big vote-getters, like getting rid of the troika and the bailout program, have not happened.”
Rebuilding trust with the creditors presents a separate challenge. Lenders will continue to scrutinize Greece’s finances and could make additional demands on Athens before making the next loan disbursement, which would be 7.2 billion euros, or about $8.2 billion — money the Greek government needs to meet its debt obligations.
The European skepticism was evident in the comments of Christine Lagarde, the managing director of the International Monetary Fund, who welcomed the new reform commitments but warned that the measures were “generally not very specific” and lacked “clear assurances” in areas like reforming pensions and revising the sales tax.
The reform measures, submitted to Brussels by the Greek finance minister, Yanis Varoufakis, included plans to crack down on the smuggling of fuel and tobacco, which costs the Greek economy billions of euros a year in unrecovered tax revenue; modernize the pension system; and confront nonperforming bank loans.
Yet Mr. Tsipras did win some important flexibility that analysts said could allow him to finance programs to help struggling Greeks. The new accord includes pledges for food stamps as well as free electricity for the poor, a package that Syriza recently estimated would cost some 1.8 billion euros. The government also plans to review the possibility of expanding a pilot program that guarantees a minimum income to poor families, while also raising the minimum wage and helping struggling homeowners meet mortgage payments.
The challenge is that the government has promised that any new social programs would have “no negative fiscal effect” — a pledge that has prompted some analysts to argue that Mr. Tsipras’s government will be as constrained as the center-right New Democracy government that he replaced.
“The Greek electorate wants different things,” said Mujtaba Rahman, a chief European analyst for the Eurasia Group, a research firm in London. “They want their membership in the euro and they want to end austerity, and at some point, these desires will become mutually incompatible.”
Yet Mr. Tsipras does have the advantage of being new on the scene. Many analysts note that even his most fervent supporters will give his administration time to deliver on promises.
“They have public support because people are very tired and fed up with the old politicians,” said Ioannis Tsamourgelis, an economics professor at the University of the Aegean. “But there will be huge problems. Their main focus now is to stay together and not lose the governing majority.”