They offered to do what???
Photograph by Kostas Tsironis — Bloomberg via Getty Images
By Geoffrey Smith
July 10, 2015

Financial markets are in jubilant mood Friday after the Greek government appeared to capitulate to its creditors’ demands, ‘volunteering’ to carry a list of reforms that are essentially the ones rejected by a huge majority in a referendum last weekend.

The euro, European stocks and most Eurozone government bonds are sharply higher, after Greece sent in a list of new proposals for a new three-year bailout worth €53.5 billion ($59 billion), in return for immediate action on such issues as raising VAT and cutting pensions, which the left-wing government had previously refused to do.

The documents make no mention of debt relief, which had also been a key demand of Athens until now. European Commission President Jean-Claude Juncker had said Monday night that the creditors wouldn’t even consider the question until October at the earliest.

The Euro Stoxx 50 index had plummeted after the referendum but it now back above where it was before the vote.


Initial reactions from politicians elsewhere in the Eurozone have been positive, if still cautious. France, Greece’s strongest supporter in the euro zone, rushed to offer praise with President Francois Hollande calling the offer “serious and credible”. Eurogroup head Jeroen Dijsselbloem called it a “thorough piece of text” but declined to go into specifics, according to Reuters.

Ian Bremmer, president of the Eurasia Group think-tank, said Hollande’s public support for the proposals would mean that the blame would fall “squarely” on German Chancellor Angela Merkel if talks over a new bailout now collapse.

The proposals still have a lot of hurdles to clear: they must first be accepted by the three monitoring institutions as an acceptable basis for talks on a third bailout to begin. They must also be approved by the Greek parliament. And they must also, crucially, be accepted by the 18 other members of the Eurozone, many of whose of governments are under significant pressure from public opinion not to throw good money after bad in the direction of Athens.

Plus there is the thorny issue of what the bean counters call “debt sustainability.” Analysts at Credit Suisse point out that the rules of the European Stabilization Mechanism, the bailout vehicle which will administer any new package, insists (like the International Monetary Fund) that any country receiving aid should have a credible path to repaying it.

German finance minister Wolfgang Schäuble on Thursday had admitted the point long argued by the IMF–that Greece’s debt is unsustainable without some form of restructuring–but again repeated that restructuring the Eurozone’s claims on Greece would be illegal.

The ‘Eurogroup’ of finance ministers will meet on Saturday afternoon in Brussels to decide whether or not to accept the proposals as a basis for talks, and a summit of all 28 European Union members is slated for Sunday (effectively to prepare emergency steps for a Greek exit from the Eurozone if the plans are rejected).

Local media in Greece report that despite vociferous opposition so far, the Syriza party of Prime Minister Alexis Tsipras is willing to support the measures. However, the leader of Tsipras’ coalition partners, Panos Kammenos, has been quoted as saying he won’t support it.

The measures are still likely to pass in parliament even if Kammenos’ Independent Greeks vote against them, assuming that Syriza’s party discipline holds. The centrist To Potami and the center-right New Democracy parties, which form the bulk of the opposition, have both indicated they will support them rather than risk being ejected from the single currency zone.

But analysts are upbeat that the conversion of Syriza–by far the largest party in parliament–from an anti-bailout party to a pro-bailout one–has sharply reduced the risks of the worst-case scenario–a disorderly default by Greece, followed by an exit from the Eurozone.

“Signing on this package of reforms represents a fundamental change for Tsipras,” Credit Suisse’s director of European economics Giovanni Zanni wrote in a note to clients. “It will be difficult for him to represent credibly extreme views again.”


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