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Eurozone Approves Greece Bailout Overhaul Plan After Bailout Plan Approval, Greece Faces a Balancing Act
(about 4 hours later)
BRUSSELS — Eurozone finance ministers on Tuesday approved Greek proposals aimed at easing the hardships created by a huge international bailout, extending that program by four more months. BRUSSELS — Eurozone finance ministers on Tuesday approved Greece’s plan meant to ease the hardships created by its international bailout, extending that loan program by four more months.
The decision by the finance ministers means “national procedures for extension of the Greek programme can begin,” Valdis Dombrovskis, a vice president at the European Commission, wrote on his Twitter account. In revising the terms of the bailout program, the new Greek government pledged to take a disciplined approach to budgets, spending and tax collection, while remaining committed to relieving the “humanitarian crisis” caused by years of economic hardship and high unemployment. Many Greeks blame the austerity-budget requirement of the bailout program, agreed to by a previous government, for those privations.
The reworking of the bailout program by the new Greek government included pledges to take a disciplined approach to budgets, spending and tax collection, while remaining committed to easing the “humanitarian crisis” caused by years of economic hardship and high unemployment. But in trying to achieve that delicate balance — to meet the demands of its European creditors in order to keep the loan money flowing, but without reneging on the anti-austerity campaign promises on which it was elected in January — the government of Prime Minister Alexis Tsipras may find a difficult road ahead.
In trying to achieve that delicate balance — to meet the demands of its European creditors in order to keep the loan money flowing, but without reneging on the anti-austerity campaign promises on which it was elected — the government of Prime Minister Alexis Tsipras may find a difficult road ahead, even with the backing of the eurozone finance ministers. The finance ministers of the 19 euro-currency countries, who last Friday had agreed to consider an extension of Greece’s 240 billion euro, or $272 billion, loan program, on Tuesday afternoon quickly approved the subsequent plan.
The extension is expected to require the approval of lawmakers in Greece, Austria, Estonia, Finland, Germany, Netherlands and Slovakia before a Saturday deadline, when the European portion of the bailout is set to expire. But though the eurozone ministers were leading the negotiations on behalf of their countries, the response from two of the other creditors — the European Central Bank and the International Monetary Fund — conveyed a certain skepticism of whether Greece could live up to the terms of the new agreement.
In a statement, the so-called Eurogroup of finance ministers from the 19 countries that use the euro said they approved the Greek proposals in an afternoon conference call, after having consulted with Greece’s other major lenders, the International Monetary Fund and the European Central Bank. Mario Draghi, the president of the European Central Bank, said on Tuesday that the Greek measures were a “valid starting point” and suggested that he might be open to changes in the conditions originally imposed by Greece’s creditors when the current bailout program was agreed to in 2012.
“The institutions provided us with their first view that they consider this list of measures to be sufficiently comprehensive to be a valid starting point,” the Eurogroup wrote. But Mr. Draghi said that Athens needed to provide more details about what it had in mind, and that any existing loan conditions the Greeks did not like would have to be replaced “with measures of equal or better quality.”
Mario Draghi, the president of the European Central Bank, said the Greek measures were a “valid starting point” and suggested that he might be open to changes in the conditions imposed by Greece’s creditors. Christine Lagarde, the managing director of the I.M.F., said she welcomed new commitments by Athens to fight tax evasion and corruption. But she warned that the Greek measures were “generally not very specific” and suffered a lack of “clear assurances” in “perhaps the most important” areas — like the size of pensions; revisions of Greece’s sales tax; continued plans to sell off state-owned assets; and revisions to labor laws, which outside critics consider too burdensome to employers.
But he said that Athens needed to provide more details about what it had in mind, and that any existing conditions the Greeks did not like would have to be replaced “with measures of equal or better quality.” Notably on Tuesday, there was no immediate political outcry within Greece. That was in contrast to last Friday when even some members of Mr. Tsipras’s Syriza party criticized even the tentative agreement with the creditors as a sellout.
The International Monetary Fund also gave the Greek proposals a lukewarm reception. Christine Lagarde, managing director of the I.M.F., welcomed commitments by Athens to fight tax evasion and corruption. But she warned that the Greek measures were “generally not very specific” and suffered a lack of “clear assurances” in “perhaps the most important” areas, like pensions, value added tax, privatizations and labor market law. Greek television reported that some members of Mr. Tsipras’s cabinet on Tuesday expressed objections to some terms of the proposal. Notably, Panagiotis Lafazanis, the energy minister and the leader of Syriza’s radical-left faction, was said to have demanded clarifications. But no ministers made public statements criticizing the document.
Greek stocks rose sharply in midafternoon trading, with the Athens index up about 10 percent and bank shares rising more than 15 percent. Interest rates on Greek 10-year bonds fell to about 8.4 percent. ​ Investors hailed the news Tuesday, with Greek stocks rising sharply after the announcement. The Athens index ended the day up about 9.8 percent and bank shares rose 17.3 percent. Interest rates on Greek 10-year bonds, an indication of government borrowing costs, fell to about 8.5 percent, down from 11 percent on Jan. 30.
The Eurogroup statement formally closes a chapter in the bitter standoff between Greece and countries like Germany and Finland, where there is deep mistrust of the new anti-austerity government in Athens. That mistrust nearly derailed weeks of late-night bargaining in Brussels. Some analysts, though, predicted tough going for Mr. Tsipras in coming months.
But the statement was also a sign that lenders would continue to closely scrutinize Greece’s finances and that they could make additional demands on Athens before disbursing a loan of €7.2 billion, or about $8.2 billion — money the Greek government needs to meet its debt obligations. Under bailouts in 2010 and 2012, Greece has been granted €240 billion in exchange for pursuing various economic overhauls. “He’s really between a rock and a hard place now,” said Carsten Brzeski, chief economist in Germany for the bank ING. “It will be very hard for him to please both sides of this equation,” said Mr. Brzeski, alluding to the restive Greek electorate — who voted in large numbers for Mr. Tsipras to ditch austerity — and to the country’s creditors, who are demanding that Greece enact sweeping reforms before being given more bailout money.
“We call on the Greek authorities to further develop and broaden the list of reform measures, based on the current arrangement, in close coordination with the institutions,” the Eurogroup wrote, referring to the International Monetary Fund and the European Central Bank. “There is really very little he can sell to his electorate that is linked to his election campaign, apart from a few things like an increase in the minimum wage and a slower pace of privatizations,” Mr. Brzeski said. “His big vote-winners like getting rid of the troika and the bailout program have not happened.”
Among the overhauls are plans to improve management of the national budget, and to enact changes to Greece’s taxation system, including changes to sales tax policy, “with a view to limiting exemptions while eliminating unreasonable discounts,” according to a letter that Yanis Varoufakis, the Greek finance minister, submitted to Mr. Dijsselbloem. The troika is the common name of the three bailout monitors — the European Central Bank, the I.M.F. and the European Commission, which is the executive arm of the European Union.
Even Tuesday’s milestone is not the final one for Greece. The plan is expected to still require the approval of lawmakers in Greece, Austria, Estonia, Finland, Germany, the Netherlands and Slovakia before a Saturday deadline, when the European portion of the bailout program is set to expire.
Even the finance ministers who signed off on the deal Tuesday indicated Greece still had more homework to do. “We call on the Greek authorities to further develop and broaden the list of reform measures, based on the current arrangement, in close coordination with the institutions,” the ministers wrote, referring to the I.M.F. and European Central Bank.
There is little doubt that the lenders will continue to scrutinize Greece’s finances, and they could make additional demands on Athens before making the next loan disbursement, which would be €7.2 billion, or about $8.2 billion — money the Greek government needs to meet its debt obligations.
Among the measures promised by Athens are plans to improve management of the national budget, and to enact changes to Greece’s tax-collection system, including changes to sales tax policy, “with a view to limiting exemptions while eliminating unreasonable discounts,” according to a letter that Yanis Varoufakis, the Greek finance minister, submitted to Jeroen Dijsselbloem, the president of the group of finance ministers from eurozone countries.
The letter emphasized Greece’s commitment to curbing tax evasion, particularly among the wealthy, and said that fighting corruption was “a national priority.”The letter emphasized Greece’s commitment to curbing tax evasion, particularly among the wealthy, and said that fighting corruption was “a national priority.”
The government also committed not to reverse existing privatization plans and said it would review planned sell-offs with a focus on bolstering “the state’s long-term benefits.” The government also committed not to reverse existing plans to privatize state assets and said it would review planned sell-offs with a focus on bolstering “the state’s long-term benefits.”
In addition to streamlining the public sector, the government will review public spending at every level and will modernize the pension system in an effort to end “loopholes and incentives that give rise to an excessive rate of early retirements.” In addition to streamlining the public sector, the government said it would review public spending at every level and will modernize the pension system in an effort to end “loopholes and incentives that give rise to an excessive rate of early retirements.”
The country still plans to raise the minimum wage, one of the government’s pre-election promises, but pledges to do so in a way that safeguards competitiveness, the letter said. Also on the list submitted by Mr. Varoufakis are plans to crack down on the smuggling of fuel and tobacco, which costs the Greek economy billions of euros a year in unrecovered tax revenue; to go after tax delinquents and deal with nonperforming bank loans.
Greek television reported that some members of Mr. Tsipras’s cabinet had expressed objections to certain overhauls set out in Greece’s letter to the Eurogroup. But — in a sign that the dissent was controllable, at least for the moment — no ministers made public statements criticizing the proposed changes. But overhauls are also meant to address what the new government has described as Greece’s “humanitarian crisis,” which it attributed to years of austerity, by offering measures including food stamps and free electricity for the poor, a package that Syriza recently estimated would cost some €1.8 billion.
The opportunity for Greece to submit the proposals was one of the few concrete concessions it won in an accord reached with its creditors late on Friday in Brussels. That accord brought to an end the bitter standoff that began when Mr. Tsipras pledged to redraw or scrap the bailout agreement after he came to power in January.
European and Greek officials spent much of Monday exchanging drafts of the proposals to pare back austerity measures while ensuring that Greece can still meet fiscal obligations.
The government of Mr. Tsipras had an opportunity to put its “political stamp” on a bailout plan if it respected budget targets, Mr. Dijsselbloem told the parliamentary committee.
The deal to extend the country’s bailout program with European creditors by four months is subject to the approval of the Greek Parliament, where some members of Mr. Tsipras’s radical-left Syriza party have called the plan a capitulation after the party’s anti-austerity campaign promises.
Also on the list submitted by Mr. Varoufakis are plans to crack down on the smuggling of fuel and tobacco, which cost the Greek economy billions of euros a year in unrecovered tax revenue; to address tax arrears and nonperforming bank loans; and to support struggling homeowners who are unable to meet their mortgage payments.
The overhauls will also address what the new government has described as Greece’s “humanitarian crisis,” which it attributed to years of austerity, by offering measures including food stamps and free electricity for the poor, a package that Syriza has estimated would cost some €1.8 billion.
The government also plans to review a pilot program seeking to guarantee a minimum income to poor families, according to criteria like the number of children in a household or the number of unemployed. The pilot was introduced in the fall by the previous administration, offering monthly payments of €250 to €500 to families, at an estimated total cost of €750 million to €1 billion.The government also plans to review a pilot program seeking to guarantee a minimum income to poor families, according to criteria like the number of children in a household or the number of unemployed. The pilot was introduced in the fall by the previous administration, offering monthly payments of €250 to €500 to families, at an estimated total cost of €750 million to €1 billion.
But the cost of extending the plan nationwide, as the new government aims to do, remains unclear.But the cost of extending the plan nationwide, as the new government aims to do, remains unclear.
Athens said in the letter that the assistance measures would be mostly “nonpecuniary” and would have “no negative fiscal effect.” The government also intends to raise the minimum wage and support struggling homeowners who are unable to meet their mortgage payments.
But Mr. Varoufakis’s letter to the finance ministers said the assistance measures would have “no negative fiscal effect.”
That is the balancing act that many a skeptic might end up betting against.
“The Greek people do not yet understand the size of the U-turn,” said Mujtaba Rahman, a chief European analyst for the Eurasia Group, a research firm in London. In reality, said Mr. Rahman, “the government is going to have to do 95 percent of what the last administration had to do.”
Mr. Rahman predicted that Mr. Tsipras might end up needing to reshuffle his government, to receive access to further bailout money while staying in power.
“The Greek electorate wants different things,” Mr. Rahman said. “They want their membership in the euro and they want to end austerity, and at some point these desires will become mutually incompatible.”