Greek crisis: Eurogroup sets strict demands in exchange for funding

Athens and the eurogroup may have reached an agreement to resume bailout talks, but it is one that undermines the Greek government.

By Julie Levy-Abegnoli

14 Jul 2015

After 17 hours of talks, eurogroup leaders and Athens were finally able to come to an agreement on conditions for unlocking further bailout funds. These must now be voted on by the member states' national parliaments before Greece can receive any money.

If approved, this third bailout - which could be worth between €82-€86bn - will come at a high price for Athens, with the eurogroup demanding that a number of austerity measures be implemented, despite this possibility having been rejected in Greece's referendum earlier this month.

In addition, Tsipras and his left-wing Syriza party rose to power having promised not to impose further austerity on Greece, meaning that if the new conditions are accepted, his position as head of government could be weakened. 

There has been considerable tension within the party in recent days, with Greek energy minister Panagiotis Lafazanis believing the new agreement "cancels the popular mandate and the proud 'no' of the Greek people in the referendum".

He also slammed the eurogroup, saying, "our so-called partners led by the German establishment, behaved towards our country as being their colony and they are nothing more than brutal blackmailers and financial assassins."

Meanwhile, former finance minister Yanis Varoufakis accused the EU of having "never before made a decision that undermines so fundamentally the project of European integration. Europe's leaders, in treating Alexis Tsipras and our government the way they did, dealt a decisive blow against the European project."

He added, "the euro summit statement reads like a document committing to paper Greece's terms of surrender. It is meant as a statement confirming that Greece acquiesces to become a vassal of the eurogroup."

He also accused it of having "nothing to do with economics, nor with any concerns for the type of reform agenda capable of lifting Greece out of its mire. It is purely and simply a manifestation of the politics of humiliation in action."

"Even if one loathes our government, one must see that the eurogroup's list of demands represents a major departure from decency and reason", said Varoufakis.

Tsipras was expected to meet with his MPs on Tuesday, and a cabinet reshuffle following the vote has not been ruled out.

 

The terms of the deal

Members of parliament are under considerable pressure, as the proposed deal demands that certain measures be passed by Wednesday. The tight deadline is likely due to the fact that Greece must repay €3.5bn to the European central bank (ECB) by Monday.

According to the official summit statement, these measures include "the streamlining of the VAT system and the broadening of the tax base to increase revenue". In other words, more goods will be subject to the highest VAT rate - 23 per cent.

Greece must also, by Wednesday, approve plans for "upfront measures to improve long-term sustainability of the pension system as part of a comprehensive pension reform programme". This means that the country must raise its retirement age to 67 by 2022 and pensioners will receive less government aid.

By 22 July, Athens must pass measures to "proceed with the privatisation of the electricity transmission network operator" and open shops on Sundays.

Regarding labour markets, Greece is expected to "undertake rigorous reviews and modernisation of collective bargaining, industrial action and, in line with the relevant EU directive and best practice, collective dismissals". 

The document adds that, "labour market policies should be aligned with international and European best practices, and should not involve a return to past policy settings which are not compatible with the goals of promoting sustainable and inclusive growth."

And perhaps even more significantly, "the government needs to consult and agree with the institutions [the commission, ECB and international monetary fund] on all draft legislation in relevant areas with adequate time before submitting it for public consultation or to parliament."

Essentially what this means is that the Greek government is no longer a sovereign entity - if Athens wants further bailout funds, it must seek the institutions' permission before making any decisions at national level.

Greece has also been asked to sell off assets to reach a total amount of €50bn, which will be placed in a privatisation fund and used to pay off some of the country's debt - half of the money will go towards the recapitalisation of banks.

Originally, the fund was set to be managed from Luxembourg, but this idea was rejected by Tsipras and it will now be run from Athens.

 

A long road ahead

The conditions laid out during last weekend's summit are only the start of a long process, with the official statement stressing that these are simply "minimum requirements to start the negotiations with the Greek authorities".

It also says that "the eurogroup stands ready to consider, if necessary, possible additional measures, such as possible longer grace and payment periods". However, "nominal haircuts on the debt cannot be undertaken".

It is unclear what the consequences would be should the Greek parliament vote down the agreement.

 

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