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Greece gets a stay of execution with a new $90 billion bailout deal

Hollande (l.) has led opposition to Germany's draft that for the first time dares to propose a "Grexit".Hollande (l.) has led opposition to Germany's draft that for the first time dares to propose a "Grexit".
Hollande (l.) has led opposition to Germany's draft that for the first time dares to propose a "Grexit".Photograph by Mario Salerno — Council of the EU

Greece got a stay of execution Monday morning as the Eurozone agreed to start talks over a new $90 billion three-year bailout program in return for an eye-watering list of creditors’ demands that will test Greece’s leadership and population to the limit.

The sun was already high in the Brussels sky as bleary-eyed leaders started to tumble out of the Justus Lipsius building into their limousines after over 17 hours of talks. Back in the building, manwhile, E.U. council president Donald Tusk was tweeting an unlikely victory.

At a brief and haggard press conference, European Commission President Jean-Claude Juncker described the result as a compromise that was “a typical European arrangement,” allowing the creditors to save face without humiliating the Greek people.

However, there will be huge difficulties in making the package stick, especially in Greece, which now has to implement even tougher conditions than the ones it was offered in the past, under a government that patently doesn’t believe in the agenda. The new agreement will also send Greece’s overall debt load soaring to nearly €400 billion, or around 200% of gross domestic product. It isn’t clear how the International Monetary Fund will react to that, given its previous comments on the sustainability of Greece’s debt.

There were few details immediately available, but Tsipras had been forced eventually to accept one of the most controversial points–the mortgaging of state assets to guarantee future debt repayments. Eurogroup chairman Jeroen Dijsselbloem said the fund will target assets of €50 billion, although it isn’t clear whether Athens is supposed to provide all of that. The fund is to be used, in part, to recapitalize the banking system, which earlier draft statements indicated need €25 billion to restore their balance sheets after this year’s recession.

More details are due to be hammered out at yet another meeting of Eurozone finance ministers later Monday.

 

In all, the Eurozone–led by Germany’s Angela Merkel–has exacted a fierce revenge on the left-wing Greek government for its brinkmanship and recalcitrance over the last five months, making good a threat to offer only harsher terms on renewing aid in the wake of last week’s referendum. Athens had infuriated the rest of the Eurozone by calling the referendum and urging Greeks to vote against further austerity (they did, by a margin of nearly two-to-one). But the conditions offered Sunday were, as promised, much tougher than those that Athens had rejected a week earlier. Athens will have to pass, by Wednesday, a raft of laws aimed at plugging holes in its budget and pension systems, and deregulating more parts of the country’s still inefficient and state-dominated economy. Many of the requirements are conditions from previous bailout agreements that the creditors had let slide despite Greece’s non-compliance.

In the meantime, Greece’s banks remain closed, the crucial summer tourist season is being ruined and the economy is shrinking by an estimated 1% every week.

A German-inspired draft statement of the summit’s conclusions had contained a barely-veiled threat of expelling Greece from the Eurozone, dressed up as a “temporary time-out”, if it failed to comply. The proposals marked a radical new departure in European politics. Although Germany has traditionally been the dominant force behind the single currency project, it has never paid so little attention to veiling its power. The show of diplomatic force drew a furious reaction on social media worldwide, with protests against the proposed measures under the hashtag #ThisIsACoup being the top trend in both Germany and Greece.

Ultimately, Tsipras had had little alternative but to accept the bulk of the demands, which enjoyed broad support among the group. These included a sweeping veto on new legislation, the repeal of various laws enacted since February (according to Merkel) and the reinstatement of regular enforcement (or rather, ‘monitoring and implementation’) visits by officials from the European Commission, European Central Bank and International Monetary Fund–the hated ‘Troika’ of technocrats.

The demands look set to have immediate repercussions in Greece, with a change in government and a bolstering of the extreme wings of Greek politics both likely. Reuters quoted Panos Skourletis, Greece’s Labor Minister, as saing that the bailout offer being put to Greece is unviable and will require the support of opposition lawmakers or a national unity government to implement. He predicted another election later this year.

“It’s now clear they want to crush us. Enough,” Panos Kammenos, the head of the junior coalition partner in Athens, the right-wing Independent Greeks party, said via Twitter. Greek media have reported that Kammenos will take his party out of government rather than support any new agreement.

Syriza is facing defections from its own ranks, too, in protest at Tsipras’ new-found pragmatism. Reuters reported that Tsipras is preparing to expel up to 17 lawmakers who withheld their support for new austerity measures at the weekend. With neo-fascist and unreformed Communist parties already represented in parliament, the idea of a “national unity government” that can rally an overwhelming majority of public opinion behind yet more austerity seems far-fetched.