Greece has negotiated a third bailout with its European creditor nations but it comes with heavy conditions that impose sweeping social and economic reforms.
The €86 billion ($141.5 billion) package, detailed in a seven-page Euro Summit document, will rescue the ailing banking system and keep Greece in the eurozone. The outcome of 22 hours of negotiations in Brussels represent the surrender of the left-wing government of Prime Minister Alexis Tsipras to its European Union lenders, led by Germany with the support of northern and eastern member nations.
In fact, the conditions – which have to be passed within a couple of days by the Greek Parliament – are tougher than the measures which two out of three Greeks rejected in a referendum just over a week ago. Mr Tsipras’ gambit failed spectacularly and while Greeks have got a larger rescue deal there is no reduction in the total debt to be repaid.
“The deal is hard,” Mr Tsipras said after the summit, warning that the measures would send the economy further into recession. Meanwhile, European financial markets responded positively to the outcome, with shares rising and bond prices easing. Once approved, the package will make the country’s debt more manageable, for instance by giving it more time to repay rescue loans.
Greece will need between €82 billion and €86 billion in fresh funding over the next three years. Between €10 billion and €25 billion will be required to recapitalise the banks, damaged by months of deposit outflows and two weeks of capital controls. The International Monetary Fund (IMF) will remain involved in bailing Greece out even after the fund’s existing rescue programme expires in March.
Athens defaulted on a €1.56 billion payment to the IMF on June 30 and is unlikely to make a €456 million payment that is now due. Greece also has to make a €4.2 billion payment to the European Central Bank on July 20. Government-funded pensions will be cut and consumption taxes will be increased and broadened. Other changes include making it easier to fire workers, as well as the further liberalisation of markets for products such as pharmaceuticals, milk and baked goods.
Greece will have to privatise state assets, including the electricity network operator. It will be easier to wind down broken banks, including by sharing the cost with investors and creditors. A privatization fund supervised by European nations will hold some €50 billion in state-owned assets slated to be sold or wound down in the coming years. The money will be used to repay debt, recapitalise the banking system and make new investments in growth assets.
What happens next
The new bailout measure must be immediately voted on in Greece’s Parliament, a move that could split the ruling Syriza party and its right-wing coalition partner, the Independent Greeks.
Fresh elections may be needed if the Tsipras government collapses. The agreement gives no immediate answer as to when the banks – closed for most business for the past two weeks – will reopen. ATMs still have a limit of €60 daily withdrawals and capital controls remain in force.
Wall Street advanced on the agreement of bailout aid to Greece. The Dow Jones Industrial Average gained 179 points, or 1%, to 17,940 in afternoon trade. The S&P 500 added 18 points, or 0.9%, to 2095. The Nasdaq Composite Index added 65 points, or 1.3%, to 5062. European stocks also advanced on the heels of the Greek deal. Germany’s DAX rose 1.5% and France’s CAC-40 gained 1.9%.