12th July 2015

Politics: Greece defaults, opposes austerity in a referendum, then asks for new bailout


Last two weeks (29 July-12 July) saw a vibrant development in the Greek saga. First, the last-ditch attempt to avoid default failed, leading to a sovereign default on 30 June since Greece failed to pay its bundled €1.6 bn payment to the IMF. The country imposed capital controls and closed all commercial banks. The summitry continued ahead of the Sunday 5 July´s referendum. In the referendum, though, Greek citizens overwhelmingly opposed the reform plan negotiated by the government with the international creditors, making the mood in the eurozone even darker. In preparation for the inevitable new talks, the outspoken finance minister Varoufakis was replaced by a calmer personality, the lead negotiator Tsakalotos. Greece formally asked for a new bailout from the eurozone´s stability mechanism ESM worth €54 bn, proposing a reforms package in return and hoping for a debt restructuring. The new plan seems to go even further than the one Greek voters rejected in the recent referendum. Prime minister Tsipras, who even went to the European Parliament to find a sympathetic ear for Greek needs, managed to pass the plan through the Greek parliament, although only thanks to the help of the conservative opposition – several SYRIZA MPs voted against or left the room prior to the vote.

During the weekend (11-12 July), first eurozone finance ministers and then presidents and prime ministers considered the Greek offer. As of Saturday, there was no clear compromise. Germany and Eastern European eurozone members adopted a very tough line after the referendum - it was even reported that the Finnish finance minister Stubb had a parliamentary mandate to openly push for Grexit. The finance ministers meeting failed to agree even on conclusion remarks. Little more was expected from the Euro Summit on Sunday. Insiders have indicated, that the hardliners would push for several preconditions Greece must meet in order to even start the third bailout talks – e.g. some concrete reforms adopted by law.

Meanwhile, although Greek banks remain closed, money continues to leave them through ATMs (there is a €60/person/day limit) and the banks survive only thanks to emergency assistance approved by the ECB. The central bank made a goodwill gesture – leaving the assistance unchanged as the second bailout program officially ended on 30 June (although it made the assistance´s conditions a little stricter) and promised to keep it at that same level as long as there is hope for a new program. If the missed 30 June repayment to the IMF meant technical default, the missed repayment of some €3.2 bn that is due in the following days and weeks to the ECB will surely mean a financial collapse of Greece. If Greek obligations to the ECB are not met (which is almost sure without a third bailout), ECB will most probably halt the emergency financing of Greek banks and Grexit will be inevitable.

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Members of the American Chamber of Commerce in the Czech Republic