The Real Battle Over Greece Still Lies Ahead

Updated on
Alexis Tsipras
Alexis Tsipras, Greece's prime minister, must submit a list of economic measures it will undertake on Monday. Photographer: Jasper Juinen/Bloomberg

Greek Prime Minister Alexis Tsipras began the task of selling domestically a provisional deal with euro-area partners to extend bailout funds after securing a reprieve from the prospect of national insolvency.

“We won a battle, but not the war as the difficulties, the real difficulties, not only those related to the discussions and the relationship with our partners, are ahead of us,” Tsipras said in a televised speech on Saturday.

Talks in Brussels between officials from the 19 euro-area countries concluded late Friday with an agreement to extend bailout funds to Greece for four months. Tsipras’s government must submit a list of economic measures it will undertake by Monday. Finance chiefs will then decide whether his proposals go far enough.

While the agreement potentially frees up some money to meet at least some of the pledges made by Tsipras before last month’s election, the outcome may still prove politically bruising for him.

His policies remain subject to validation by the International Monetary Fund, the European Central Bank and the European Commission, the institutions collectively known as the troika from which Tsipras vowed to break free.

While Greece has discussed the measures with its euro-area partners and the troika, the proposals are Greek, Finance Minister Yanis Varoufakis said after a cabinet meeting in comments broadcast on Skai TV. The list of measures will be completed today, he said.

Current Program

There is no disagreement between the two sides and “we are almost certain that we will get a yes from the institutions,” Varoufakis told Skai.

“While Greece secured some ability to rewrite the terms of its current program, the sense is that the combination of pressure on its banking sector and on state cash flows has forced the bulk of concessions to come from their side,” Malcolm Barr, an economist at JPMorgan Chase & Co., said in a client note. “This may place some degree of strain within Syriza itself.”

Tsipras said the deal “cancels austerity” and pledges by the previous government to cut wages, pensions and public sector employees and increase sales taxes. The list of reforms will be “based on the current arrangement,” the Eurogroup meeting of finance ministers said in a statement. That will include fighting corruption and public administration and tax-system changes, government spokesman Gabriel Sakellaridis said on Mega TV on Saturday.

Red Lines

Syriza lawmakers would approve the list of measures even if they didn’t fully meet pre-election promises, George Stathakis, Greece’s minister for economy, shipping, tourism and infrastructure, said in an interview in Kathimerini. Still, Environment and Energy Minister Panagiotis Lafazanis told Real News in an interview that Syriza’s “red lines won’t be violated, that’s why they’re called red.”

The agreement allows Greece to lower previously agreed targets on reaching a primary budget surplus. In return, it will refrain from unilateral actions that may jeopardize fiscal targets and will abandon plans to use about 11 billion euros ($12.5 billion) in leftover European bank support funds to help restart the Greek economy. Sakellaridis acknowledged that marks a turnaround from a previous target.

Conference Call

The deal with the euro-area partners doesn’t mean that the government’s red lines “disappear,” Georgios Katrougalos, alternate Administrative Reform minister, said in an interview with Skai TV today. “I probably wouldn’t stay in my position, if I think that those red lines aren’t being respected, but the government intends to respect them.”

Finance ministers will hold a conference call Tuesday to discuss the Greek response, after which the deal, if approved, will be put to national parliaments next week. Austria’s Hans Joerg Schelling said that a new Eurogroup meeting will be called “immediately” if the list of measures is deemed insufficient. Varoufakis said he was confident his counterparts will approve his government’s measures, or else “this agreement is dead and buried.”

The breakthrough removes the threat of the ECB pulling the plug on the nation’s banks, a prospect that would have risked Greece crashing out of the euro. Capital controls are now out of the question, according to a euro-area official. Deposit withdrawals from Greek banks reached 20 billion euros since December.

Pressure Continues

Still, pressure on Tsipras will continue as the disbursement of the next bailout tranche of about 7 billion euros will be made once the country’s commitments are implemented, allowing Greece to keep servicing its bills, including IMF loan repayments. Tsipras’s election pledges included raising pensions, halting most state-asset sales and reinstating some government workers.

Five years and as many prime ministers after the euro-area’s first international bailout in 2010, Greece’s economy has shrunk by about a quarter and it’s shouldering the highest unemployment in the region. A deal might go some way to help repair the frayed ties between Greece and Germany, the biggest European contributor to Greece’s 240 billion-euro bailouts.

“In some ways, Syriza’s toughest political and economic challenges still lie ahead, and are closer to Athens than Berlin,” Lena Komileva, chief economist at G Plus Economics Ltd. in London, wrote in an e-mailed note.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE