She wins. He loses.

Photographer: JOHN MACDOUGALL/AFP/Getty Images

Greece Blinks

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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After months of deadlines that turned out not to matter and final demands that weren't met, the threat of a one-way ticket from the euro seems to have finally persuaded Greece to capitulate to its creditors. For all of France's diplomatic scrambling last week to help Greece craft a settlement, it also turned out that there's really only one voice that matters in Europe -- and it speaks from Berlin. Once Germany raised the possibility that Greece could be unceremoniously ejected from the common currency project, the situation quickly became binary for Greek Prime Minister Alexis Tsipras. Now, it looks as if he'll have to sell his electorate an even more demanding deal than the nation's voters recently rejected.

QuickTake Greece's Fiscal Odyssey

"The most important currency got lost, and this is trust," was how German Chancellor Angela Merkel summed things up as she entered 17 hours of negotiations in Brussels. Back in Athens, the Greek government responded with its usual hysterics. Germany is "destroying" Europe for the third time in a century, said Nikos Filis, the parliamentary spokesman for the governing Syriza party. "What's happening to Greece at the negotiations is waterboarding."

That kind of language helps explain why Merkel ran out of patience with Greece. By demanding that Tsipras hand over assets worth as much as 50 billion euros ($56 billion) to an independent fund that could sell them off -- anyone want to buy a Greek island? -- Greece's lenders are effectively obliging the government to cede sovereignty in return for more money. That's harsh, but understandable; in return for billions of euros in additional aid, the nation's creditors have the right to demand intrusive oversight on the progress of economic reforms.

Related: Greece Default Watch

Greece needs 22 billion euros to pay its bills just through the end of August, according to Maltese Finance Minister Edward Scicluna. That includes the 3.5 billion euros Greece is scheduled to repay the European Central Bank on July 20 and 10 billion euros for its banks. "The Greeks have finally understood that unless they get an injection of cash they are faced with a doomsday scenario," Scicluna said at the weekend prior to the deal being reached.

The highest priority now is to replenish the nation's financial system so its banks can reopen. Capital controls in Cyprus lasted two years; ideally, with the support of the ECB, Athens will move faster than that.

This deal, of course, could still unravel. Cutting pension spending and increasing taxes will be deeply unpopular domestically; and while Tsipras said he's won a a debt-rescheduling program, Merkel is still ruling out an outright reduction in the burden. Now, the Greek parliament might balk. The Greek people, meantime, must wonder what the wrangling of the past five months has achieved, and why the austerity they just voted down is back with a vengeance.

"Trust has to be rebuilt, the Greek authorities have to take on responsibility for what they agreed to politically here," Merkel said in the wake of this morning's deal. If Tsipras backslides on the economic reforms he's now agreed to, Germany will be swift to reach for the euro-ejector button. For now, let's hope the deal sticks. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net