Greece agrees to new bailout terms and more austerity
By Derek Gautopolous
ATHENS, Greece – Greece struck a deal with rescue creditors Tuesday toward getting the bailout cash it needs to avoid another brush with bankruptcy this summer, though it leaves long-suffering Greeks facing years more austerity.
Following months of tough negotiations, the Greek government agreed to make another round of pension cuts in 2019 and commit to new tax increases after the current bailout program ends next year.
In return, creditors will resume loan payouts, and start talks on how to ease the country’s debt burden, which stands at nearly 180 percent of the country’s annual GDP.
The need for an imminent release of bailout funds was becoming increasingly important – Greece is expected to require some 7 billion euros ($7.6 billion) to cope with a summer spike in debt repayments.
Prime Minister Alexis Tsipras’ left-wing government is set to approve the new cuts in parliament by mid-May, in time for finance ministers from the 19 countries that use the euro currency to unfreeze the money at a meeting on May 22. At that meeting, discussions over how to ease Greece’s debt repayments will commence – a key milestone for Tsipras.
Two years ago when the country was on the cusp of a euro exit – so-called Grexit – Tsipras signed off on the country’s third international bailout. In return for up to 86 billion euros over three years, his government, which was elected on an anti-bailout mandate, agreed to further austerity and reforms. The money is only released after creditors agree that Greece has met its side of the bargain.
Though increasingly unpopular in opinion polls, Tsipras can get the latest agreement throughout parliament but there’s not much room for manoeuver as his governing coalition with a nationalist right-wing party only has a majority of three seats in parliament.
“Tsipras has been able to command remarkable discipline in his party up to now,” said Joan Hoey, regional director for Europe at the Economist Intelligence Unit. “We will see whether that continues to apply in coming weeks.”
Officials in Athens conceded that a more comprehensive agreement needed for the release of funds could take longer.
“This is not a deal that closes the second (bailout) review, but another painful step toward that end,” Hoey said. “We do not know all the details, only that those prior actions will include some very unpopular reforms … (It) seems like another case of deal doublespeak.”
Greece has been surviving on bailout loans since 2010 in return for harsh spending cuts and tax increases that have contributed to a sharp rise in unemployment and left more than a third of the population living in poverty or at risk of poverty.
“This is a painful compromise,” Interior Minister Panos Skourletis told state-run ERT television.
Tsipras, whose Syriza party is trailing badly behind rival conservatives in the polls, has insisted it will not seek elections until his term ends in 2019.
“We are paying the price of Mr. Tsipras’ deception,” conservative opposition leader Kyriakos Mitsotakis said. “He promised us more funding without austerity, but what we ended up with is more austerity and no additional funding.”
The agreement with creditors was reached after a nightlong session of talks at a hotel in Athens and after big May Day rallies in the capital that required riot police to prevent protesters from entering the building.
Greek government officials said lenders dropped their demands to abolish a long list of employment rights and also agreed to the expansion of benefit schemes for jobless and low-income families.
However, the marathon talks in Athens provided little clarity on whether the International Monetary Fund would pledge money to the current rescue program – it’s been involved since the start of Greece’s bailout era – and how high Athens will have to keep budget targets after 2018.
However, the IMF, along with EU institutions welcomed the agreement and noted that “the Greek authorities have confirmed their intention to swiftly implement this policy package.”
They said in a statement that the deal “will now be complemented by further discussions in the coming weeks on a credible strategy for ensuring that Greece’s debt is sustainable.”
Pierre Moscovici, the European Commission’s top economy official, said “it is time to turn the page on this long and difficult austerity chapter for the Greek people. With this agreement, we need now to write a new story of stability, jobs and growth for Greece and for the euro area as a whole.”
The delay in reaching an agreement threatened hopes of a sustained return to economic growth in Greece after years of recession fueled by the austerity measures that creditors say has been necessary to reverse chronic overspending by the state.
After a run of recent gains, shares on the Athens Stock Exchange were up nearly 3 percent on the news of the agreement. Government borrowing costs were also lower, a sign of growing investor confidence, with the rate on Greece’s 2-year-bond dipping below 6 percent, compared with 10 percent in February.
“The fact that the negotiations lasted several months will have consequences on the Greek economy,” said Vagelis Sioutis, head of equities at Guardian Trust Securities in Athens.
“The (official) target for 2.7 percent growth (in 2017) at the moment looks very difficult, if not unattainable.”