What the Greek Bailout Agreement Looks Like

Months of bitter negotiations between Greece and its Eurozone creditors are nearly over. Early Monday morning the two sides agreed on a cash-for-reform agreement that will provide Greece with an EUR86 billion bailout allowing it to meet its debt obligations for the next three years.

Most importantly, the troubled Mediterannean nation will remain in the Eurozone. It will be the third bailout program extended to Greece since 2010.

The agreement comes with a cost, however. Barely a week after voting to reject the Eurozone’s bailout conditions in a stunning July 5 referendum, the Greek people will be forced to swallow yet another round of harsh austerity measures including tax increases and spending cuts.

Greek banks currently remain closed, and Greek Economy Minister George Stathakis has predicted that it will be “a couple of months” before capital controls are fully lifted.

The Anatomy of an Austerity Package

Greek Prime Minister Alexis Tsipras and his left-wing Syriza party lobbied hard for the public to vote “no” in the referendum on whether to accept a set of economic reforms proposed by the Eurozone on 26 June.

The move was intended to gain leverage in negotiations, with Tsipras telling a state-run TV station that “the greater the number of no [votes], the greater weapon the government will have to re-launch negotiations. Greece never left the negotiating table; it is still at the negotiating table.”

Sixty-one percent of voters checked the “no” box, but it did little to strengthen Greece’s position vis a vis its ceditors.

The Euro Summit Statement issued on July 12 set out the list of reforms and fiscal measures, that Greece had to implement, on Wednesday evening before negotiations could begin on a Memorandum of Understanding (the conclusion of which would result in the actual dispersal of bailout funds).

The four preliminary points include increasing tax revenue, implementing pension reform, introducing automatic spending cuts in case budget surplus targets are missed, and ensuring full independence of the national statistics office.

The document contains a second list of required reforms that must be implemented in order for the Memorandum of Understanding to be agreed upon. Measures include privatizing the country’s electricity transmission network, liberalizing markets for products, professional services and labor, and cutting spending on public administration, among other measures.

Perhaps most difficult to accept for Syriza’s staunch leftist base, the deal will require the government to place EUR50 billion in state assets in an “independent fund that will monetize the assets through privatisations and other means.”

Half of the proceeds (EUR25 billion) will go to recapitalizing Greek banks; the remainder will be divided between paying down Greece’s external debts and funding growth initiatives.

Few Concessions by Eurozone

The statement shows that Eurozone negotiators made only slight concessions from the June 26 proposal.

The EUR50 billion privatization fund will be managed by the Greek authorities, an easing of previous demands that it be “transferred to an existing external and independent fund.”

Furthermore, only one part of the fund must be earmarked to pay down Greek debt. The previous proposal demanded that the full EUR50 billion be used for debt reduction.

The Eurozone also pledged to “work closely with the Greek authorities to mobilise up to EUR35 bn (under various EU programmes) to fund investment and economic activity” over the next three-to-five years. This is widely seen as the most significant concession made by the creditors.

A previous German proposal that Greece be given a five-year “time-out from the euro area” if a deal wasn’t reached was also removed from the final text.

Dashing the hopes of many Greeks who hoped that Tsipras could successfully negotiate a write-down of some of Greece’s debt, both the agreement and the previous proposal take the same hard line: “nominal haircuts on the debt cannot be taken.”

However, the final text mentions “possible longer grace and payment periods” which could be extended to Greece in order to make its debt more sustainable.

Rebellion in Syriza Ranks

Tsipras and the Greek negotiating team accepted the bailout, harsh terms and all. But getting the agreement through Greek parliament came at the cost of alienating much of the party’s base.

“With this deal, the public mandate and the proud ‘No’ of the Greek people in the referendum is canceled,” railed Energy Minister Panagiotis Lafazanis, one of Syriza’s staunch leftist members.

Lafazanis was one of 38 Syriza members, including former Finance Minister Yanis Varoufakis and Deputy Labor Minister Dimitris Stratoulis, who voted against the agreement.

The agreement was passed with 229 votes in Greece’s 300-seat parliament, with Tsipras being forced to rely on support from opposition parties PASOK and New Democracy, both groups his party defeated in parliamentary elections earlier this year.

The full text of the Euro Summit Statement can be accessed here: https://www.google.ge/?gws_rd=cr,ssl-&ei=VISnVbHmL-4fiywPXl4-CIAQ#q=News-+Armenia+News-+Agency

Joseph Larsen