Prime Minister Alexis Tsipras surrendered to European demands for immediate action to qualify for up to 86 billion euros ($95 billion) of aid Greece needs to stay in the euro.
After a six-month offensive against German-inspired austerity succeeded only in deepening his country’s economic mess and antagonizing his European counterparts, there was no face-saving compromise on offer for Tsipras at a rancorous summit that ran for more than 17 hours.
“Trust has to be rebuilt, the Greek authorities have to take on responsibility for what they agreed to,” German Chancellor Angela Merkel said after the meeting ended just before 9 a.m. in Brussels Monday. “It now hinges on step-by-step implementation of what we agreed.”
The agreement shifts the spotlight to the parliament in Athens, where lawmakers from Tsipras’s Syriza party mutinied when he sought their endorsement two days ago for spending cuts, pensions savings and tax increases. They have until Wednesday to pass into law key creditor demands, including streamlining value-added taxes, broadening the tax base to increase revenue and curbing pension costs.
While the summit agreement averted a worst-case outcome for Greece, it only established the basis for negotiations on an aid package, which would also include 25 billion euros to recapitalize its weakened financial system.
The Stoxx Europe 600 Index climbed 1.5 percent at 9:55 a.m. in London, while futures on the Standard & Poor’s 500 Index erased a drop to rise 0.3 percent.
With Greece running out of money and its banks shut the past two weeks, the summit was billed as its last chance to stay in the euro. Greece has been in financial limbo since the government missed a payment to the International Monetary Fund and allowed its second rescue package to lapse on June 30.
“The Greek government has accepted practically everything,” Maltese Prime Minister Joseph Muscat said in an interview. “It accepted all the crucial and important points.”
The conditions that Tsipras swallowed comprised a laundry list of unfinished business from Greece’s two previous bailouts and a new demand for the government to transfer 50 billion euros of state assets to a holding company that will seek to either sell or generate cash from them. His creditors rejected Tsipras’s pleas for a cut in the face value of Greek debt of about 310 billion euros.
Merkel said interest-payment grace periods and longer maturities will “be discussed once there is a successful evaluation of the new Greek program.”
As the summit approached its climax in the early hours of Monday, the main session broke at least four times to allow Tsipras to confer with associates in Athens, according to one official with knowledge of the talks. Tsipras told the creditors he’d enforce party discipline in parliament, the official said. The terms are significantly tougher than those he labelled “blackmail” when he persuaded Greek voters to reject them in a referendum a week ago.
Calling that vote “has turned into one of the most expensive economic policy mistakes in the European Union for a long time,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a note to clients Monday. “The much bigger sums which creditors now need to offer and the tougher conditions Greece now has to meet make it harder for both sides to deliver on the bargain.”
Return to Athens
In addition to requirements on pensions and sales taxes, measures that Tsipras accepted last week, the leaders demanded that creditor representatives return to Athens with full access to ministers and a veto over relevant legislation, intrusions that he has long rejected.
“We had to succeed,” said French President Francois Hollande. “If Greece had left the euro zone what would the world have said? That the euro zone wasn’t able to maintain its integrity? That Greece couldn’t assume its responsibilities? That France and Germany couldn’t propel this project forward?”
The cost of insuring corporate debt declined, pushing the Markit iTraxx Europe Index to a five-week low. The gauge of credit-default swaps covering investment-grade companies fell two basis points to 66 basis points. The Markit iTraxx Europe Senior Financial Index slid four basis points to 75 basis points.
Tsipras said that the deal had prevented the banking system collapsing but will inevitably harm the economy. He’ll return to Greece to face a political backlash that may force him to organize a government of national unity or call new elections after retreating from his campaign promises to lift wages and throw off the yoke of austerity.
“We put up a hard fight for the past six months and we fought to the end in order to get the best out of it, to get a deal which will allow the country to stand on its feet and the Greek people to keep fighting,” Tsipras said in Brussels.
Nikos Filis, the parliamentary spokesman for Tsipras’s governing party, said that Greece had been “waterboarded” by euro-area leaders during the negotiations and accused Germany of “tearing Europe apart” for the third time in the past century. “#ThisIsACoup” became the most-trending Twitter hashtag in both Greece and Germany overnight.
Greece’s banks remain shut and capital controls will remain in place when they reopen, as soon as this week if there’s a deal, Economy Minister George Stathakis told Mega TV.
The banks are expected to stay closed on Monday, so the ECB won’t need to adjust its now-frozen emergency credit line to the banks right away, an EU official said as leaders were meeting. The ECB’s Governing Council is slated to review the banks’ situation again on Monday when the Greek government is set to renew a bank holiday and capital controls decree expiring today.
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