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Here’s why Greece’s next bailout is far from a done deal

The sense of impending doom may have receded, but Greece is bracing for another bruising couple of weeks as it prepares to try and nail down a new €86 billion bailout from its international creditors.

The debt-laden country had only just avoided national bankruptcy and a devastating ejection from the Eurozone last month, being forced into a raft of what many argue are unrealistic promises in a return for a ‘bridging loan’ until a new long-term deal could be agreed.

The Greek and French governments, along with the European Commission, have all been talking up the prospects of wrapping up that long-term deal by the end of next week, allowing Greece to make another large debt repayment (of €3.4 billion) to the European Central Bank on Aug. 20 and inject fresh capital into its devastated banks.

But, true to the traditional playbook of the Greek debt crisis, Germany is raising objections.

The Sueddeutsche Zeitung reported Friday that Berlin would rather offer Athens another bridging loan, quoting a Finance Ministry official as saying that “A program that’s supposed to run for three years and cost €80 billion needs a really solid basis…We’d rather have another bridging loan than a half-baked program.”

Behind this foot-dragging is the familiar hurdle to a lasting solution for Greece’s debt crisis. Germany wants the International Monetary Fund to be involved in the bailout process, in order to keep some distance between it and the pain inflicted by the reforms it wants in return for its help. The IMF is refusing to subscribe to a new bailout without a major restructuring of Greece’s debt. Its own rules forbid it to lend to countries that are bankrupt. But back in Germany, there isn’t (yet) the political will to acknowledge that the taxpayers who have lent so much to Greece won’t live to see it repaid–if indeed it ever is.

Debt sustainability may be the biggest obstacle to a third bailout, but it’s by no means the only one. Another is the catastrophic situation of Greece’s banks. They may have re-opened, but capital controls and withdrawal restrictions are still in place, playing havoc with businesses and with the lives of ordinary people. The provisional deal struck last month foresees that €25 billion of the €86 billion total will go to recapitalizing the banks, but there are fears that even this won’t be enough to absorb all the losses they have suffered this year. The banks’ stocks have been the biggest losers since the stock market reopened on Monday, all of them losing over 50% in the course of the week.

The ECB, which supervises the largest Greek banks, this week started a new audit of their loan books to see how much they they lost in the recent chaos. It’ll be a strong test of the new supervisor’s mettle: if the losses are bigger than the €25 billion earmarked, will it massage the figures down, or present a larger bill to the Eurozone’s finance ministers?

Then there is the unresolved business of past bailouts. Germany and the other Eurozone creditors see the negotiations over the next bailout as their last big chance to close tax loopholes and end other privileges for special interest groups. The key example here is the tax treatment of farmers, who pay only half the statutory 26% rate of income tax and enjoy discounts for things such as diesel fuel, even if they aren’t full-time farmers. Tsipras carved this piece of political Kryptonite out of a wide-ranging bill that was needed to get the first bridging loan, but it seems unlikely that he can persuade the creditors to indulge him on that much longer.

Which brings us back to the political context in which the next two weeks’ negotiations will take place. Tsipras’ Syriza party split as a result of his concessions to the creditors in July, and what the commentators diplomatically call ‘a fragile truce’ is about as real as the one in eastern Ukraine. Tsipras has warned he will expel lawmakers who continue to vote against the reforms he has to push through. But in doing so, he would risk losing his majority in parliament. A government spokeswoman said this week that new elections in the fall are likely. Berlin is likely to view that as another reason to keep Athens on a short leash in the meantime.

However, the risk of the Eurozone cutting Greece adrift is still, probably, not very big–if only for one of the bleakest reasons of all. Greece is a frontline state in an increasingly alarming migrant crisis for the whole of Europe. More refugees arrived there in July –nearly 50,000–than in the whole of last year, according to figures released Friday by the E.U.’s border agency Frontex. The overwhelming majority are fleeing violence and persecution in Syria, Iraq and Afghanistan, and Tsipras admitted Friday that his country just can’t cope.

The E.U. has set aside more than €500 million in funding to help Greece deal with arriving migrants, but the E.U. Commissioner for Migration and Home Affairs, Dimitris Avramopoulos, told Tsipras earlier this week that it couldn’t be paid out because Greece has failed to set up a service to absorb and distribute the money. A currency crisis would only add to the humanitarian disaster unfolding there by making government even more dysfunctional.