Early in the morning on Monday 13 July, following an all-night Euro Summit as well as a reduced-format negotiation with the German Chancellor Merkel, Greek Prime Minister Alexis Tsipras seems to have saved his country´s place in the euro. Despite the fatalistic mood after the 11 July´s Eurogroup, which failed to agree even on a closing statement, the heads of state and government of the euro area found a way to keep Greece afloat. As expected, Greece asked for a brand-new bailout program from the ESM - to help it meet its financial obligations and, also as expected, proposed far-reaching reforms – tougher than the ones Greek voters rejected in the controversial referendum. The Euro Summit agreed in principle to open new bailout talks, but only once Greece adopts a list of reforms – some by Wednesday 15 July, while others by Wednesday 22 July. These reforms include VAT system overhaul (including higher VAT in tourism services), pensions reform, strict independence of Greek statistics bureau and the beginning of public administration depolitisation. These ex ante measures, agreed on by the Greek government, illustrate how trust has eroded in the past months between Greece and the rest of the eurozone. It was also made clear that since the financial situation of Greece became much worse in the past weeks, not least due to capital controls, reforms in the new program (a third one for Greece) would have to be stricter than anticipated. The eurozone also asked, and Greece agreed, to include a separate IMF program since March 2016. The new ESM program is expected to be worth more than €80 bn, excluding up to €25 bn for bank recapitalization.
As part of the future bailout deal, there will be established an independent privatisation fund in Greece, worth some €50 bn. Greek state assets will be transferred to the fund, which will in turn monetize them, using the revenues for bank recapitalization, debt reduction and investment. This is regarded as the most controversial issue - it was agreed among the last ones.
In the following days, the Greek parliament passed both waves of ex ante reforms and negotiations on the program were launched. Several eurozone parliaments, including the German Bundestag, voted on the issue. These parliamentary votes showed the splits in several ruling parties – the Greek SYRIZA party was hopelessly split on the issue and the reforms passed in the parliament only thanks to the opposition. What followed was a government reshuffle by PM Tsipras. In Germany, some 40 lawmakers from Ms Merkel´s CDU, and from the Bavarian sister party CSU, opposed the talks – embarrassing the chancellor.
The ECB eased the conditions for emergency liquidity assistance for Greek banks, which allowed them to open last week, although capital controls remain in place. The Council of the EU also approved a bridge-loan for Greece worth €7 bn from the Commission-administered EFSM, allowing Greece to repay both the IMF and the ECB. Much will now depend on whether the new bailout talks can be finalized successfully and if the Greek government is able to pass the tough reforms it pledges to adopt. But the immediate danger of a Grexit, dangerously close 2 weeks ago (not least because of German finance minister Schauble´s proposals for a euro time-out for Greece), seems now to be averted.
4th November 2020
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