Capitulation
After five months of sturm and drang, Greece today capitulated to Germany over the country's bailout terms. Ladbrokes, the British bookmaker, is taking bets that Prime Minister Alexis Tsipras will resign by the end of the year, but I'm not sure I'd take the 8-to-11 odds. The deal he finally agreed to demands harsher terms than the one he encouraged Greeks to reject in a July 5 referendum. Not only must Tsipras get his parliament to adopt within three days the tax increases and pension cuts Greek voters rejected, he also must put 50 billion euros of asset sales (pssst, wanna buy a Greek island?) into a fund that creditors will use to pay down debt, recapitalize Greek banks and invest in the economy. The Greek government has long resisted privatizing distressed state assets, so creditors are taking those decisions out of its hands. Greece's partners couldn't have said "we don't trust you" more clearly.
The Greek soap opera isn't over yet, but it does demonstrate that Tsipras's belief -- that euro-area leaders wouldn't dare risk a "Grexit" -- was wrong. It was Tsipras who had to cave, or else take responsibility for a collapsed Greek banking system, forcing him to issue IOUs to pay public-sector wages and pensions. Even if his parliament approves this deal, it will be some time before it's clear the agreement can stick. Far too much bad blood has been spilled.
