Greek Prime Minister Alexis Tsipras braved a revolt in his own party as parliament in Athens began to debate a bailout of up to 86 billion euros ($95 billion) that international officials have already suggested won’t be enough.
With Greece’s finances deteriorating rapidly and its banks on the verge of collapse, the European Union proposed a four-week bridging loan that countries including the U.K. have refused to back. Adding to the worsening outlook, the European Commission and the International Monetary Fund both said they had serious concerns about Greece’s debt load.
The increasingly desperate efforts to aid Greece underline the fragile nature of the deal struck in weekend negotiations to keep the country in the 19-nation euro region. The first challenge falls to Athens, where parliament must back a package of austerity measures as a precondition to the country’s third bailout in five years.
“We had to negotiate a difficult agreement that includes both fiscal measures and reforms,” Finance Minister Euclid Tsakalotos told lawmakers in Athens on Wednesday as they began debating the package. Some measures “continue to be of a neoliberal bent that will affect many social groups, with a doubtful return in terms of growth,” he said.
With capital controls ravaging an economy that has already shrunk by a quarter since 2009, the prospect of having to back steps including streamlined sales taxes and curbs to the pension system split Tsipras’s anti-austerity Syriza coalition.
A majority of members of Syriza’s central committee signed a declaration rejecting the agreement, Athens News Agency reported. High-profile cabinet members including Energy Minister Panagiotis Lafazanis said they’ll reject the bailout and the deputy foreign and finance ministers resigned in protest. The defections mean Tsipras will have to rely on opposition lawmakers to carry the vote, due before midnight local time, and then reshuffle his ministerial team.
Government 10-year bond yields in fellow bailout recipients Spain, Portugal and Ireland narrowed by as many as 10 basis points on the prospect of a resolution to the standoff that has convulsed the euro area since Tsipras’s election in January. The euro was little changed at 2:17 p.m. in Frankfurt after dropping 3 percent since June 18, when Tsipras said he was ready to reject a bailout with its associated conditions.
Those same measures demanded by creditors in exchange for aid have exacted a “heavy toll” and led to a dramatic deterioration in Greece’s ability to repay its debt over the past two weeks, a new analysis by the IMF showed on Tuesday. Greece as a result needs debt relief “far beyond” what the euro area has been willing to consider, including possibly deep “haircuts” on the value of Greek debt, it said.
That message was amplified by the European Commission Wednesday in an assessment of Greece’s latest bailout request. It concluded that without further aid, the “financial stability risks for Greece will not be manageable and the banking sector will inevitably collapse.”
With the pressure rising for immediate aid to keep Greece from defaulting on the European Central Bank and its own citizens next week, the EU proposed bridge financing of 7 billion euros using a bloc-wide fund. Acknowledging that’s a route U.K. Chancellor of the Exchequer George Osborne and others have refused to accept, the commission is exploring ways to shield non-euro nations from the associated risks.
The ECB’s Governing Council held off its review of the liquidity situation of Greek lenders until after the vote in Athens. The decision will now be taken on Thursday, 20 days after the government decided to close Greek banks amid record deposit outflows.
Amid domestic political reverberations and external questions over the deal’s sustainability, Tsipras took to national television on Tuesday night to argue the case for an accord as Greece’s only chance.
“My priority is to make sure that the choice I made the other day, with a knife at my neck, is finalized,” Tsipras said in an interview with ERT-TV.
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