The reviews are in, and the critics are pretty much unanimous: Greece has caved. The country offered up a new bailout proposal to its European creditors on Thursday night that is largely similar to the deal its voters so roundly rejected in last weekend's referendum, complete with major concessions on budget surpluses, sales tax hikes, pension cuts, and the privatization state assets. Some of the austerity measures it includes may actually be more severe than the ones Greeks shot down at the polls.
And what does Greece get in return? Instead of the five-month, €15.5 billion agreement that had been on the table, Athens wants €53.5 billion worth of loans lasting three years, which would lock in a little stability going forward. Perhaps more importantly, the government is seeking to further restructure its existing loans—which is completely reasonable. As the International Monetary Fund admitted recently, Greece's current debt load is unsustainable. It needs some relief.
Will Europe give it to them? Maybe. France is certainly excited about Greece's proposals—President François Hollande called them "serious" and "credible." On the other hand, an unnamed German official tells Bloomberg that a three-year deal would require tougher conditions than the old proposal, since Greece would be getting a longer commitment, which bodes ill for the possibility of an agreement by Sunday's deadline. Meanwhile, German Finance Minister Wolfgang Schäuble delivered an especially cryptic and discouraging pronouncement on Thursday, saying that Greece's debt was both too large and that the European Union probably couldn't forgive any of it. "Debt sustainability is not feasible without a haircut and I think the IMF is correct in saying that," he told a conference in Frankfurt before adding, "There cannot be a haircut because it would infringe the system of the European Union." Does that mean any sort of an agreement is now impossible in German eyes? Nobody is sure.
Thus, by folding on nearly every major issue, Greece may finally secure a rescue deal that contains at best a token amount of debt relief, maybe in the form of longer maturities and slightly lower interest rates—if they can secure one at all. In the meantime, by taking negotiations to the brink, Prime Minister Alexis Tsipras helped spark a bank run that required shutting down the country's financial institutions for two weeks and slamming on capital controls, more or less putting the entire economy on ice. We don't know yet how much damage the panic inflicted, and the government isn't entirely to blame for it—the European Central Bank, by limiting emergency lending to Greek banks, helped start the chaos. But it seems certain that this whole incident has ended up sinking the country further into depression, in return for little to nothing.
Greece never had a very good hand in these negotiations. Though it's been correct on the merits regarding many issues, especially debt relief, the second German officials and their allies decided the European Union could survive a Greek default and exit from the euro, Tsipras and his far-left party Syriza lost nearly all of their leverage. But over the last couple of weeks, we've basically watched Athens go all-in on its hand, then fold at the last second. And it's been awful for the Greek people.