Greece’s banks are set to reopen next week after a vote to accept more tough reform and austerity measures led to the European Central Bank reopening the liquidity taps.
The move is a major relief for the cash-strapped economy, where banks have been closed two weeks ago as a referendum on proposed austerity measures triggered fears for Greece’s ability and willingness to stay in Europe’s currency union. The closure of the banks has cost the economy around €2 billion a week, according to analysts’ estimates.
At his regular press conference Thursday, ECB President Mario Draghi said the central bank had raised the limit on short-term emergency loans to Greek banks by €900 million, meaning that the banks will be able to restock ATMs. However, that doesn’t necessarily mean an end to restrictions on transferring money outside the country, and it’s still possible that depositors will be subject some form of daily withdrawal limits.
The ECB’s move was a reaction to a decision in principle by European Union finance ministers to offer Greece a new three-year bailout program after Greece’s parliament last night voted through a raft of budget cuts, tax increases and other reforms far tougher than the ones they had rejected at the referendum. As a first step, Greece is likely to get a €7 billion bridging loan Friday that will allow it to clear its arrears at the International Monetary Fund (now over €2 billion) and meet a €3.5 billion bond repayment to the ECB. The last real hurdle to that is a vote in the German Bundestag, which is expected to pass easily despite widespread anger at having to offer Greece yet more money.
The vote has come at some political cost: Athens saw its first night of violent protests in a year as the lawmakers gathered to vote (although local reports suggests that over half of the people arrested were foreigners). More importantly, nearly a third of the lawmakers from Prime Minister Alexis Tsipras’ Syriza party either voted against the bill or abstained, leaving him dependent on the votes of opposition MPs for his majority.
With a stable parliamentary majority no longer given, and with Syriza profoundly split and with Tsipras himself confessing that he doesn’t believe in the program, the odds on it being implemented successfully over the next three years seem vanishingly slim.
But Greece’s government isn’t the only one who is afraid of taking ‘ownership’ of a deal that most analysts have dismissed as unrealistic and unworkable.
In a radio interview with Deutschlandfunk earlier Thursday, German Finance Minister Wolfgang Schäuble reiterated his belief that Greece would be better off leaving the Eurozone temporarily.
“No-one knows at the moment how it can carry on without a debt write-down, and everyone knows that a debt write-down isn’t reconcilable with membership of monetary union,” Schäuble said.
The IMF, meanwhile, has so far kept its distance from the deal altogether, saying it can’t send any more money to Greece unless its debt is restructured deeply enough to be sustainable. It also pours scorn on Eurozone hopes that Greece will be able to meet a large part of its financing needs through selling state assets over the next three years.
Klaus Regling, the German who heads the Eurozone’s permanent bailout vehicle, the European Stability Mechanism, told German TV Thursday morning he expects up to €35 billion to come from privatization receipts, while the IMF says that anything more than €500 million a year is unrealistic.
Carsten Brzeski, chief German economist with Dutch bank ING-Diba in Frankfurt, said that “the decision to grant the bridge loan and the ELA increase were “no game changer”, but rather “a symbolic leap of faith.” Draghi said that the ECB would continue to act on the assumption that Greece will stay a member of the Eurozone, although he was forced to accept that his pledge in 2012 to do “whatever it takes” to keep the Eurozone together couldn’t override political choices as to who stays and who leaves.
Draghi said it was “uncontroversial” that Greece needs major debt relief, saying that the question was how that relief can be extended, given the legal constraints of the E.U.’s treaty, which prohibits transferring the debt of one country directly onto another.