Greece's Tsipras Is on a High Wire

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How Will Austerity Be Defined in Greece?

The head of the group of euro-region finance ministers expects Greece to deliver a package of economic measures that will satisfy creditors and avert another emergency round of negotiations.

Jeroen Dijsselbloem said he’s “very confident” the government in Athens will demonstrate commitment to reforming the country’s finances. Under a draft agreement on Feb. 20, it had until midnight Greek time to complete a list of policies in return for continued funding. A Greek government official said it will be sent to the finance ministers on Tuesday.

“The Greek government has been very serious, working very hard the last couple of days,” Dijsselbloem, who is also Dutch finance minister, said in an interview at an event in Tilburg, the Netherlands, on Monday. “We need it to be strong enough to work on the next couple of months. I am always optimistic.”

Approval of the plans to raise money would offer a four-month reprieve for Greece and stave off a funding crisis. At the same time, it puts pressure on Greek Prime Minister Alexis Tsipras at home as he tries to keep onside the rank and file of his anti-austerity Syriza party just under a month after it won power on pledges to take back control of Greece’s finances.

After they receive the proposals, finance chiefs led by Dijsselbloem will decide whether they go far enough or, if not, trigger another round of intense negotiations. The ministers are scheduled to hold a conference call on Tuesday.

Tough Sell

Tsipras “will certainly have a difficult time to explain the deal to voters,” Ariel Rajnerman, an analyst at Roubini Global Economics, wrote in a note to clients dated Feb. 23. “The Greek drama shall continue but eventually a compromise will be found as there’s no intention on the part of anyone to spoil the cyclical momentum Europe can finally enjoy.”

The measures first remain subject to validation by the International Monetary Fund, the European Central Bank and the European Commission, the institutions that were collectively known as the troika and from which Tsipras vowed to break free.

The Greek government has sent a draft of commitments and it’s under discussion, an official from the institutions said. The person asked not to be named because the deliberations between the two sides are private.

“There are talks happening,” European Commission spokeswoman Mina Andreeva told reporters in Brussels on Monday. “We are in contact with the Greek authorities and also with the institutions, so I think it’s normal that documents are circulating.”

‘Red Lines’

Greek government spokesman Gabriel Sakellaridis said in an interview on Skai television Monday that the list will include fighting corruption and changes to the tax system. Greece still plans to increase the minimum wage, introduce legislation on bad loans and back taxes and maintain pensions, he said. It will also restore collective bargaining for labor unions.

All of those commitments are still “red lines” for the government, said Sakellaridis, 34. “This is the popular mandate we have received and we will honor it,” he said.

The government said in a statement later that the list will include all of Syriza’s pledges for “alleviating the humanitarian crisis” and the cabinet will convene on Tuesday after the document goes to finance ministers.

While capital markets in Greece were shut for a national holiday, stocks and bonds rallied across Europe following Friday’s accord. Three-year Greek bond yields were down 156 basis points to 15.06 percent as of 5:04 p.m. in London.

Battleground

Tsipras, 40, began the task of selling domestically the provisional deal to extend bailout funds after securing the reprieve from the prospect of national insolvency.

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

He said the agreement “cancels austerity” and annuls pledges by the previous government to cut wages, pensions and state employees and increase sales taxes.

The government has discussed the measures with the institutions, Finance Minister Yanis Varoufakis said after a cabinet meeting the same day. There is no disagreement and he expects them to be approved, he said. They would then be put to national parliaments for final consent.

Bank Deposits

The breakthrough on Friday removed 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.

Withdrawals of deposits from Greek banks reached at least 20 billion euros ($22.7 billion) since December. By comparison, the disbursement of the next bailout tranche would total about 7 billion euros. It will be made once the country’s commitments are implemented, allowing Greece to keep servicing its short-term debt, including IMF loan repayments.

The agreement permits Greece to lower previously agreed upon targets on a primary budget surplus, the money it has left over before interest payments on debt. That gives Tsipras room to at least come good on some pre-election pledges.

In return, the Greek government will refrain from unilateral action that may risk those goals and will abandon plans to use about 11 billion euros in left-over European bank support funds to help restart the Greek economy.

Syriza Responses

Convincing some lawmakers in the Syriza party may prove tricky. Since its first international bailout in 2010, Greece’s economy has shrunk by about a quarter and it’s shouldering the highest unemployment in the euro region.

Parliament will approve the list of measures even if members don’t fully meet pre-election promises, George Stathakis, Greece’s minister for economy, shipping, tourism and infrastructure, said in an interview with Sunday’s Kathimerini.

Environment and Energy Minister Panagiotis Lafazanis, though, told Real News in an interview that Syriza’s “red lines won’t be violated, that’s why they’re called red.”

The deal with the euro-area partners doesn’t mean that the government’s red lines “disappear,” Georgios Katrougalos, deputy administrative reform minister, said in an interview with Skai TV. “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.”

The real problem will emerge in four months when the government will have to agree on a new bailout agreement, said Tsakloglou, the economics professor.

“It’s difficult to see how Tsipras will manage to convince his lawmakers to approve a new program with all the conditionality and the monitoring attached to it,” he said.

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