Prime Minister Alexis Tsipras returned to face a mutiny within his coalition after he surrendered to European demands for action to qualify for as much as 86 billion euros ($95 billion) of aid Greece needs to stay in the euro.
With two factions in his government already saying they won’t support the deal, Tsipras met with his closest aides as he tries to stop the revolt from spreading before a vote in parliament Wednesday. Creditors’ demands include an overhaul of sales tax, a broadening of the tax base and a clampdown on pension costs.
Tsipras would “have to change his administration and clear out hardliners and radicals from his party,” as well as rely on opposition support to pass the necessary measures, said Eurasia Group analysts Mujtaba Rahman and Federico Santi. “But it is a tough call to determine how Tsipras will go about doing this.”
Attention is shifting to the parliamentary hurdles before Greece can even begin negotiations with creditors to access a third international bailout in five years.
The euro was little changed at 1.1004 in Hong Kong at 10:14 a.m. It sank 1.4 percent Monday amid speculation the deal would produce enough calm for the U.S. Federal Reserve to raise interest rates this year. U.S. stocks advanced and European equities capped their biggest rally since 2011. Asian stocks rose for a fourth day.
“There’s a vista of division within the party, part of Syriza officials and lawmakers do not accept the tactics followed by our prime minister,” Yanis Balafas, a Syriza lawmaker close to Tsipras, said in an interview. “What matters now is that the worst-case scenario of a default has been averted.”
Discontent brewed as Tsipras arrived back in the Greek capital. Left Platform, a faction within Syriza, and his coalition partners, the Independent Greeks party, both signaled they won’t be able to support the deal. That opposition alone would wipe out Tsipras’s 12-seat majority in parliament, forcing him to rely on opposition votes to carry the day.
“Over the next three years, things are going to just get worse,” said Yanis, a 23-year-old law student who joined a protest of a few hundred people outside the parliament building at the top of Syntagma Square on Monday evening. He declined to give his last name. “Maybe then people will think again about what kind of society they want to live in.”
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 little for Tsipras to tout as evidence of a face-saving compromise following a rancorous summit in Brussels that ran for more than 17 hours.
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.
Tsipras hailed the fact the fund would be based in Greece, not Luxembourg as had been suggested. He also latched onto the prospect of debt relief, albeit distant, after creditors rejected his pleas for a cut in the face value of Greek debt of about 310 billion euros. German Chancellor Angela Merkel said interest-payment grace periods and longer maturities will “be discussed once there is a successful evaluation of the new Greek program.”
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 terms are significantly tougher than those Tsipras labeled “blackmail” when he persuaded Greek voters to reject them in a referendum a week ago. 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.
With the banks closed at least through July 15, the European Central Bank’s Governing Council kept the cap on Emergency Liquidity Assistance unchanged, signaling a desire to wait for Greek lawmakers to approve reforms first.
Tsipras said that the deal had prevented the banking system from collapsing but will inevitably harm the economy.
“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.
The pact was called an “important step forward” by U.S. Treasury Secretary Jacob J. Lew, who added in an e-mailed statement Monday that “these pledges will require difficult steps by all of the parties and substantial work remains to be done.”
Although the agreement has reduced the prospect of a Greek exit from the euro to about 30 percent, from between 45 percent and 50 percent, it hasn’t been eliminated, UBS AG analysts Reinhard Cluse and Gyorgy Kovacs wrote in a note to clients.
“Given the risk of weak reform implementation, serious disagreement between the Greek government and its creditors might flare up again around future program reviews and raise fresh doubts about Greece’s future in the monetary union,” the analysts wrote.