After negotiating with euro zone leaders through the night, Greek Prime Minister Alexis Tsipras was forced to agree Monday morning to what amounts to an act of contrition: As a precondition to open talks on a fresh round of aid for the nearly bankrupt country, the Greek Parliament will first have to pass a long list of economic reforms to reestablish trust with its creditors — and fast.
By Wednesday, Greek lawmakers are expected to enact legislation to broaden the tax base and streamline the VAT to increase revenue, improve the long-term sustainability of its pension system, establish “quasi-automatic” spending cuts in the case that primary surplus targets are missed, and make its statistics agency fully legally independent, according to a final statement from the summit.
After 17 hours of negotiations, Tsipras won some concessions to one of the more Draconian of German conditions – the transfer of 50 billion euros worth of state assets to a trust fund of sorts. Tsipras was unable to negotiate a lower amount, but in a press conference Monday morning, Eurogroup President Jeroen Dijsselbloem said that the fund would be based in Greece, rather than out of the country, as Germany had demanded. The privatization of the assets will cover the “approximately 25 billion euros” that will be needed to recapitalize Greek banks, Dijsselbloem said, while of the remaining 50% of the proceeds, half will go to pay down debt and the other half will be available to the Greek government to invest in the country.
Germany in particular has pushed for a ramp up the privatization of state assets, which Greece had committed to as a condition for previous bailout assistance but had stalled on since the leftist Syriza party came to power.
Tsipras reportedly failed in one of his other last attempts at resistance: to bar the IMF from an oversight role in any forthcoming new assistance.
German Chancellor Angela Merkel did soften her stance in one key area: she indicated at a press conference Monday morning that she would consider extending the maturity of Greek loans, though not a reduction of the principal owed.
Greece’s economy has contracted a stunning 23.6% since 2008, amid the global financial crisis and harsh austerity measures taken as a condition for 240 billion euros in bailout assistance. Now Greece requires an additional 82 billion to 86 billion euros in aid over the next three years, according to an estimate prepared over the weekend by euro zone finance ministers. The country’s banks, closed since June 29, have faced a slow drain of money via capped daily withdrawals from ATMs; to remain solvent they desperately need an increase in emergency funding from the European Central Bank.
Dijsselbloem said that euro zone finance ministers would quickly start discussions on bridge financing for Greece to cover its financial needs until a new bailout package could be finalized. The country is on the hook to make a 3.9 billion euro bond payment to the ECB on July 20.
Germany had proposed that Greece exit the currency union for five years if acceptable terms were not reached, but French President Francois Hollande strongly opposed the idea Sunday. “There is no such thing as temporary Grexit, there is only a Grexit or no Grexit,” he said. “There is Greece in the euro zone or Greece not in the euro zone. But in that case it’s Europe that retreats and no longer progresses and I don’t want that.”
Greece has a debt-to-GDP ratio of 175%, second worst among developed nations to Japan’s 230% level.
The proposals met with an angry reaction from many Greeks and international opponents of the austerity program it has been forced to undertake, with the hashtag #ThisIsACoup trending strongly on Twitter.
“This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief,” wrote the Nobel laureate economist Paul Krugman on his blog.
The crash program would go much further than the reform package that the Greek Parliament approved Saturday at its creditors’ demands in an abrupt about-face after Greeks had resoundingly rejected the measures in a ‘No’ referendum vote two Sundays ago.
Germany and its allies, chiefly Finland, have resisted granting additional aid to Greece, angered by its failure to live up to the terms of previous agreements, and worried that over-generosity would encourage other highly indebted EU members like Spain and Portugal to dig in their heels to demand better deals.
Tsipras, whose party came to power on an anti-austerity platform, will need to cobble together support from opposition lawmakers to pass the required measures. His acceptance of demands he had so strenuously opposed promises to create turmoil within Syriza, and seemed likely to lead to early elections.