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Greek Debt Crisis Deal Is Reached, but Long Road Remains Deal on Greek Debt Crisis Is Reached, but Long Road Remains
(about 3 hours later)
BRUSSELS — Greece agreed to a deal with its European creditors on Monday after long and bitter negotiations, swallowing substantial new concessions in the face of imminent financial collapse and insistent demands from Germany and other countries that it prove it was worthy of a third bailout in five years. ATHENS — Forced by his nation’s creditors into broad new concessions to avert financial collapse, Prime Minister Alexis Tsipras of Greece returned home on Monday with just days to sell the deal to fractured lawmakers and a dazed electorate.
The agreement, announced after a contentious all-night session among leaders of the 19 nations that use the European common currency, requires Greece to move quickly to adopt a host of economic policy changes and to allow close monitoring by Europe and the International Monetary Fund. The agreement he struck with other European leaders early Monday after a contentious all-night bargaining session would give Greece the chance to receive its third international bailout in five years, a package of as much as 86 billion euros, or $96 billion, as well as easier repayment terms on some of its existing debt of more than 300 billion euros and a short-term economic stimulus plan.
If Prime Minister Alexis Tsipras can push the central elements of the package through his Parliament in the coming days — a political challenge likely to prove difficult — the creditors said they would be willing to open negotiations on providing as much as 86 billion euros, or $96 billion, to keep Greece afloat for the next three years, and to consider proposals to ease repayment terms on much of Greece’s existing debt of more than €300 billion. But it would require Greece to swallow a wide array of measures, including pension cuts and tax increases, and effectively subject itself to intensive international oversight in order to qualify for the aid.
The creditors also agreed, once terms of the bailout are settled, to pull together a short-term stimulus program of up to €30 billion to help Greece’s ravaged economy. The agreement gave Mr. Tsipras only through Wednesday to win legislative approval for central elements of the agreement, most of which he and his left-wing Syriza party had adamantly opposed for months. And he flew back from Brussels into a political landscape in upheaval, with portions of his party in revolt, his coalition partner rejecting the deal and his own role in the long-running drama completely changed.
To Germany and other nations that went into the negotiations fed up with Greece’s inability to get its financial act together, the outcome was fair and the new requirements necessary to assure that the Athens government lives up to its commitments. But to some Greeks, and to critics of the German-led policy of imposing deep budget austerity as a condition for aid, the deal amounted to an unwarranted violation of Greece’s sovereignty. In signing on to the deal, however reluctantly, Mr. Tsipras suddenly found himself the champion of policies he was elected to oppose and the best hope for de-escalating a crisis he had helped create. Should he succeed in carrying out the policies set out in the agreement, he would oversee just the kind of market-based, good-government changes that creditors have been demanding and successive Greek governments failing to deliver for years.
Either way, it appeared to remove the immediate threat of Greece’s financial crisis escalating to the point that the country might be forced to abandon the euro as its currency. By Monday afternoon, the European Central Bank had signaled that it would leave its credit line to Greece’s banks in place at its current level, leaving the banks, which have been closed for two weeks, in severe distress but likely to muddle through until a bailout deal can be finalized. As the talks ended in Brussels, Mr. Tsipras, who had once vowed to overturn the austerity policies he says have undercut the Greek economy and left its people suffering, was no longer talking of “blackmail” by creditors or “hostage taking.” Instead, he said the new package of proposals would “maintain Greece’s financial stability and provide recovery potential.”
“The advantages far outweigh the disadvantages,” Chancellor Angela Merkel of Germany said at a news conference, explaining her decision to accept the deal and recommend that the German Parliament also grant its approval. To Germany and other nations that went into the negotiations fed up with Greece’s inability to get its financial act together, the outcome was fair and the new requirements necessary to assure that the Athens government lives up to its commitments. But to some Greeks, and to critics of the German-led policy of imposing deep budget cutting as a condition for aid, the deal amounted to an unwarranted violation of Greece’s sovereignty.
Either way, it appeared to remove the immediate threat of Greece’s financial crisis escalating to the point that the country might be forced to abandon the euro as its currency. By Monday afternoon, the European Central Bank had signalled that it would maintain its credit line to Greece’s at its current level, leaving the banks, which have been closed for two weeks, in severe distress but with a chance to muddle through until a bailout deal can be finalized.
Across Europe, there was relief that a deeper crisis had been averted, but continued debate about whether Germany and its allies in taking a hard line with Greece had pushed Mr. Tsipras into an untenable and volatile political situation that could lead to further trouble down the line.
“The advantages far outweigh the disadvantages,” Chancellor Angela Merkel of Germany said at a news conference Monday morning, explaining her decision to accept the deal and recommend that the German Parliament also grant its approval.
“The country which we help has shown a willingness and readiness to carry out reforms,” Ms. Merkel said, referring to Greece.“The country which we help has shown a willingness and readiness to carry out reforms,” Ms. Merkel said, referring to Greece.
The agreement said Greece and its creditors should seek to “reduce that financing envelope,” if possible. Mr. Tsipras came to that willingness very late in the game, but some critics as well as supporters said that his turnabout was pragmatic in the face of shuttered banks and a collapsing economy.
As part of Greece’s commitments, Ms. Merkel said, a fund will be created to take control of assets owned by the Greek government, with the idea of selling them to help pay down the country’s debt and finance investment programs within Greece. That fund would be “to the tune of” €50 billion, she said, a figure that seemed ambitious given the slow pace of previous privatization efforts. “At a certain point he realized that he had been given very bad advice,” said Aristos Doxiadis, an economist and venture capitalist who writes about politics and has been critical of Mr. Tsipras in the past. “It wasn’t whether it was a good or a bad deal, but whether there was any feasible alternative.”
Greece will also be required to seek assistance from the International Monetary Fund and to agree to let the organization continue to monitor the country’s adherence to its bailout commitments. The Greek government had resisted a continued role for the I.M.F., seeing the fund’s involvement as unwanted meddling. Mr. Doxiadis said that Mr. Tsipras would probably emerge from the crisis remaining a major force in Greek politics, taking the place of the marginalized center-left party, Pasok.
The Greek Parliament will also be required to approve the terms of the agreement “without delay,” according to the document released on Monday morning. The agreement requires passage of many of the changes by Wednesday and others by next week. “Some will surely feel betrayed by what has happened,” he said. “But most Greeks will say this man tried very hard and if he was convinced there is no better way, then there is no better way.”
The agreement will call for Greece to raise taxes in some cases, pare pension benefits and take various other measures meant to reduce what critics see as too much bureaucracy and too many market protections that keep the Greek economy from operating efficiently. Ippolitos Papantoniou, 55, a businessman, said he was depressed by the prospect of more austerity, after having gone through five years of tough measures with rising unemployment and poverty.
The agreement specifies that Greece must address a broad array of issues long pushed by the creditors, from requiring the government to produce more reliable economic statistics to overhauling the regulations for businesses including pharmacies, bakeries and ferries and changing the rules for labor unions and strikes. “I feel very bad, because fundamentally we’ve been humiliated, and we are going somewhere that is not sustainable,” Mr. Papantoniou said. “The austerity will begin again. I don’t know the details of the deal, but of what I have seen, I see that we have a dead end in front of us.”
A bleary-eyed Mr. Tsipras, speaking to reporters here on Monday, tried to put a positive spin on what might be seen as an almost total capitulation by Athens to creditors’ demands for tough austerity. He said that the threat of Greece being forced out of the eurozone had been avoided and a promise of debt relief and growth funds had been secured. In Athens, Mr. Tsipras spent most of the day behind closed doors meeting with party officials.
“We gave a tough battle for six months and fought until the end in order to achieve the best we could, a deal that would allow Greece to stand on its feet,” Mr. Tsipras said. “We faced hard decisions, tough dilemmas,” he said, adding that the Greek authorities finally “assumed the responsibility of averting the extremist ambitions of the most conservative circles in Europe.” By the early evening, some repercussions from the deal were beginning to take shape. The far-left faction of his party announced that it would vote no on the new proposals, while his right-wing coalition partners said the deal was “unacceptable.”
But any easing of Greece’s debt repayment obligations would not include something Greece had previously made a condition of any deal: a so-called haircut, or reduction of the overall debt, which is more than €300 billion. The document issued on Monday made its resistance to that demand clear in one sentence: “The Euro Summit stresses that nominal haircuts on the debt cannot be overtaken.” But with many other parties willing to vote for the package, his most pressing problem was more likely the speaker of Parliament, Zoi Konstantopoulou, also a member of Mr. Tsipras’s Syriza party, who objected to Mr. Tsipras’s attempts to pass narrower proposals last Friday.
In an acknowledgment by the other eurozone countries that Greece’s battered economy and high unemployment need some relief, the agreement provides for €30 billion in development funds being made available through various European Union programs, if a final bailout deal goes through. Some analysts said that Ms. Konstantopoulou, a stickler for rules, could prevent him from using the fast-track procedures that would be necessary to get the job done in time to satisfy European leaders. Portions of the plan must be passed by Wednesday, and more a week from Wednesday.
Donald Tusk, the president of the European Council, who had convened the summit meeting, announced the agreement on his Twitter account shortly before 9 a.m. He later used his Twitter account to write that steps would be pursued “to swiftly take forward the negotiations” on the latest bailout. Among the elements that must be dealt with this week are increases in the value added tax, including the end of a special tax status for the Greek islands; a makeover of the pension system; and the imposition of automatic spending cuts if the government misses budget targets.
He added that eurozone finance ministers would “as a matter of urgency discuss how to help” Greece meet its short-term financing needs. That appeared to be a reference to ensuring that Greece, which is nearly bankrupt, can make large payments to lenders including the European Central Bank that are due in the coming weeks. Ms. Konstantopoulou issued a statement saying she had no intention of resigning, even as Mr. Tsipras’s allies talked of impeaching her.
Despite the agreement, Greek banks are expected to remain closed this week. The banks are acutely short of cash and Greek depositors may soon find it difficult to withdraw even small sums from A.T.M.s. If the deal is a political earthquake for Greece, it also puts the country on course for a major economic shake-up. It aims to force Greece once again to tackle many issues it has kicked aside for years, from simple ones like getting reliable economic statistics to more complex ones like opening up product and service markets, further streamlining the pension system, improving tax collection and moving ahead on privatization.
European stocks rose and the bond market calmed on Monday morning just moments after European leaders said they had reached a deal. There was no euphoria, however, as investors waited to see how the tough agreement would be put in place. Yet even if the Greek Parliament passes a spate of reforms this week, Athens has a spotty track record at carrying out tough changes. As a result, Mr. Tsipras has now agreed to have the International Monetary Fund survey every move he and his government make.
Many of the changes demanded by creditors are political hot potatoes, including raising the consumption tax to 23 percent for a range of goods and services, hiking the retirement age to 67 and reducing more pension benefits in an aging population. Many of the changes could have the effect of further slowing the economy in the short run and reducing standards of living for some Greeks.
“It will be extremely difficult for the Greek people to accept such an adjustment off the back of five years of economic depression,” Megan Greene, a managing director at Manulife who has been monitoring the Greek situation, said in a report.
The creditors’ insistence on tough terms reflects years of pent-up frustration with the slow progress Greece has made in modernizing the economy. Many claim that austerity is harder than it would have otherwise been had Athens moved swiftly to promote change.
Mr. Tsipras and most Greeks say that austerity is what killed the economy, especially after previous governments slashed state spending 20 percent since 2010 under previous bailouts, mainly by cutting pensions, wages, health care and social services, impoverishing many Greeks
One of the more contentious new demands from creditors — one that is likely to prompt an outcry among Greeks — is that Greece transfer 50 billion euros worth of state assets to a fund that would have international monitors. The fund would oversee sales to pay down Greece’s debt and help recapitalize its teetering banks.
While many Greeks are bewildered at the situation, some see a silver lining.
“You could say that this is actually a good moment,” said Dimitris Zouzoukis, 43, a banker who is involved in trade finance. “Change has to happen somehow in Greece. We need structural reforms.”