Greece is set to begin talks with creditors on a new bailout agreement as capital controls and the shutdown of its financial markets enter a fifth week.
Technical experts from the European Central Bank, the International Monetary Fund and the European Commission are due to begin talks with their counterparts by Tuesday on policies that Greece must implement over the next three years, in return for loans of as much as 86 billion euros ($94 billion).
After six months of brinkmanship that triggered unprecedented capital flight, the government was forced to impose capital controls and close its banks on June 28 in order to safeguard liquidity in its financial system.
Lenders reopened with limited services last week after Prime Minister Alexis Tsipras capitulated to creditors’ demands and agreed to implement prior actions required in exchange for a third bailout program.
While the government eased some restrictions on withdrawals and capital controls for corporations on Friday, Greek proposals to lift limits on trading were rejected by the ECB, according to an Athens stock exchange spokeswoman. The Bank of Greece, the Hellenic Capital Market Commission and the finance ministry are negotiating with the ECB on rules to reopen markets, with temporary liquidity safeguards in place, said the spokeswoman, who asked not to be identified, in line with policy.
The Athens Stock Exchange and the electronic secondary market for bonds will remain closed, pending a ministerial decision, the Capital Market Commission said in a Monday statement. An emergency ban on short selling, approved by the European Securities and Markets Authority also expires Monday.
The chairwoman of the National Bank of Greece, Louka Katseli, told Agora newspaper that only a completion of an agreement for a new aid program will restore confidence in the banking system and allow for the lifting of capital controls.
Groups representing creditor institutions are now in Athens, and the government said on Saturday that the heads of the Greece mission will arrive in a few days.
According to an international official directly involved in Greece’s bailout program, the delay was due to two reasons: the Greek government was seeking to confine the movements of Troika staff in Athens, and Greece and its creditors haven’t agreed whether additional prior actions will be required before the country is eligible for a new loan facility.
While the government and the Commission have said Greece has fulfilled the conditions following two votes in parliament in the past two weeks, some euro-area member states are still pushing for more measures, said the official, who isn’t authorized to speak publicly on the matter.
While the two sides are now more or less in agreement on the formats of the meetings, the latest delay means that completing a full memorandum of understanding in the next two weeks, which would detail dozens of measures and structural economic changes, is unlikely, the official said, adding that a new short-term bridge loan may be needed to avert default on the ECB payment in August.
After five years, two bailouts, and the deepest recession in more than half a century, the word “memorandum” has become a loaded term in Greece.
“I don’t back this government to agree new memorandums and implement them,” Syriza governing-party lawmaker Panagiotis Lafazanis told Real newspaper on Sunday.
Lafazanis was replaced as energy minister after leading a revolt of more than quarter of Syriza’s lawmakers against the deal struck between Tsipras and creditors earlier this month, which calls for a new memorandum to be signed.
Previous memorandums committing Greece to enforce reforms on everything from bank recapitalizations to evaluating the “impact of the changes in milk pasteurization and sale procedures,” have prompted dissenters to claim that Greece has turned into a “debt colony.” Creditors have said the changes are necessary to put Greece on path of sustainable growth.
Syriza’s political secretariat will meet Monday to discuss its strategy after the government’s U-turn and its effective loss of a parliamentary majority following the mutiny of MPs from the so-called Left Platform faction. The Platform, led by Lafazanis, will hold an anti-austerity event, also on Monday, to debate the results of a July 5 referendum, in which Greeks overwhelmingly voted against the terms offered by creditors. The event is titled “The No hasn’t been defeated.”
Because Tsipras will have to rely on opposition votes in order to secure parliamentary approval of the new memorandum and any prior action needed to secure the disbursement of loan tranches, Greece is heading toward a “de facto grand coalition,” Roubini Global Economics analysts Brunello Rosa and Mert Yildiz wrote in a note to clients.
“While Syriza is still hanging on to power, the defection of the party’s left wing, offset by parliamentary support from pro-bailout parties like New Democracy, To Potami and PASOK, shows that Greece is headed in this direction,” they said.