Greek legislators approved a bailout package that may unlock as much as 86 billion euros ($96 billion) and help the nation avoid a default next week when it has to make a payment to the European Central Bank.
After an all-night debate in Athens, Prime Minister Alexis Tsipras had to rely on opposition votes to secure parliament’s backing on Friday morning for a deal that includes sweeping economic reforms and budget cuts mandated by Greece’s creditor institutions. Tsipras will request a confidence vote later this month after he suffered multiple defections from his Syriza-led coalition, according to a government official who asked not to be named in line with policy.
“The first phase of a tough, painstaking process closes today,” Tsipras told lawmakers before the vote. “The real dilemma wasn’t a memorandum or an uncontrolled default; nobody could have chosen an uncontrolled default. The real dilemma was a memorandum with the euro, or a memorandum with the drachma.”
Greek stocks dropped as euro-area finance ministers prepared to meet in Brussels later Friday to discuss political backing for the deal, struck this week with negotiators from the ECB, the European Commission, the International Monetary Fund and the European Stability Mechanism rescue fund.
The IMF said late yesterday that the agreement reached in Athens was a “very important step forward” that “puts in place far-reaching policies to restore fiscal sustainability, financial sector stability, and sustainable growth.” It also urged Greece’s European partners “to make decisions on debt relief that will allow Greece’s debt to become sustainable.”
The bailout package, Greece’s third since 2010, spells out the details of the economic overhaul the government committed to in exchange for the loans. Measures include a clampdown on early retirement, state asset sales, the recapitalization of Greece’s banks and changes to the regulation of pharmacies and bakeries.
The European institutions involved in putting together the agreement voiced “serious concerns” about Greece’s ability to repay its debt. Greece’s obligations will peak at 201 percent of gross domestic product next year, before dropping to 160 percent in 2022 under a new rescue program, according to their projections in a document obtained by Bloomberg.
“Interest rates need to be as low as possible, maturities have to be as long as possible -- these things have to be re-managed to provide oxygen to the Greek economy,” French Finance Minister Michel Sapin said on France Inter radio as voting got under way in Athens. Greek debt will be discussed in October, he said.
The IMF, in its statement, said it will make a decision on committing to any more funding for Greece “once the steps on the authorities’ program and debt relief have been taken, expected at the time of the first review of the ESM program.”
Any delay in signing off on the deal risks derailing the narrow timetable for national parliaments in other euro-area countries to vote on the three-year package before a 3.2 billion-euro payment to the ECB falls due on Aug. 20. Germany’s government has said the plan needs more work and that a bridge loan remains an option to meet the ECB repayment.
That would be a setback for Tsipras, who saw 32 Syriza members oppose his government’s legislation and another 11 abstain. Lawmakers from the so-called Left Platform of his party refuse to support the continuation of austerity, accusing him of betraying his pledges and the Greek people’s mandate.
Greek stocks dropped after the vote as the prospect of early elections loomed. The Athens Stock Exchange was down 2.7 percent as of 11 a.m. local time. Greek 10-year bond yields declined 28 percent basis points to 9.6 percent.
The vote “showed that the government coalition is very significantly weakened,” said Nicholas Economides, a professor at New York University’s Stern School of Business. “Elections are very likely in early fall. The most difficult part of the agreement, its implementation, will fall to a new government, to be elected in the fall.”