The Economist Jul 14th 2015
IT HAS been a dispiriting week for Greece. On July 11th the Greek parliament voted to give the prime minister, Alexis Tsipras, the authority to negotiate a financing deal harsher than the one Greek voters rejected in a referendum on July 5th. Mr Tsipras returned to the negotiating table, and early on July 13th he secured the framework of a deal with Greece’s European creditors. It is a brutal one, which would force the Syriza-led Greek government to swallow a list of policy changes directly counter to the platform on which the left-wing party won election earlier this year. In return Greece remains in the euro area—and, if it sticks to the terms of the agreement (and if many other things go right) it also receives the right to start talks with European creditors on a new bail-out programme, which could be worth between €82 billion ($90 billion) and €86 billion over three years. Securing the deal will not be easy, however. What must Greece do to make sure the money begins to flow again?
If the vote fails to pass, Greece will return to the very brink of Grexit. If it gets through, the European Central Bank could move on July 16th to increase its emergency lending to Greek banks—which has been capped since June 29th, leaving banks closed and withdrawals limited. The rise in emergency funding will hopefully be enough to allow banks to re-open, though capital controls together with limits on the amount Greeks can withdraw each day, would probably remain in place. It would almost certainly be enough to prevent any of the big Greek banks, whose vaults have been draining slowly over the last few weeks, from running entirely out of money.
July 20th is the next trouble spot; on that day Greece is scheduled to repay the ECB €4.2 billion—money it does not have. Failure to pay would probably mean the complete withdrawal of ECB aid to Greek banks and the introduction of an alternate currency (a prelude to exit). Euro-zone finance ministers are mulling ways to come up with some sort of bridge financing to get Greece through July and August; some €12 billion may be needed to do the job. Scrounging up the money will not be easy, but Europe is unlikely to let the ECB payment knock Greece out while it is working to meet the demands of the new proposal. Then comes July 22nd, when a second set of laws must be passed by the Greek parliament. Those would overhaul the civil-justice system to make it more efficient and move forward on adoption of the European Union’s BRRD (Bank Resolution and Recovery Directive), which makes it easier to impose losses on senior creditors and depositors when banks go insolvent.
But wait, there’s more. Greece’s parliament must also commit to a whole raft of other gut-wrenching policy measures. To keep to the new programme Greece must enact further pension reforms, open up closed professions, loosen trading rules, privatise its electricity network, reform its labour market and strengthen its banks. It must produce plans for “de-politicising” the Greek administration. It must accept complete oversight from the institutions who will return to Athens to oversee the work of Greek officials and roll back any legislation it has passed since taking office that violates previous bail-out agreements (or compensate for their consequences by passing new laws). Humiliatingly, it will have to deposit what the seven-page summit statement calls “valuable Greek assets” into an independent privatisation fund with the aim of raising €50 billion over the course of the bail-out.
If Greece manages to pass the necessary legislation, the deal agreed on July 13th will then go to several euro-area parliaments for approval, a set which probably includes Germany, Estonia, Finland, Netherlands, Slovakia and Austria (countries not known for their indulgent attitude to Greece’s government). Then, if all of those hurdles are successfully vaulted, the Eurogroup will task the “institutions” (the ECB, European Commission and IMF) with the job of negotiating the new bail-out deal with Greece—talks which could stretch over four weeks or more of bitter confrontation.
Meanwhile, Greece must keep together a political coalition committed to seeing these difficult steps through, while suffering through the economic consequences of both the new austerity measures and this ongoing period of financial chaos and capital controls. If a stable government cannot be roped together, Mr Tsipras may need to call new elections. There is no telling what might happen after that. Greece has won a brief and fragile reprieve, and little more.