Finally. The end of Greece’s six month crisis appears to be in sight. The country’s Syriza leadership and its Eurozone creditors have fleshed out the terms of an €86bn (£61bn) third bailout, almost a month after the two sides agreed to it in principle.
‘An agreement has been reached. Some minor details are being discussed right now,’ a Greek finance ministry official told Reuters. ‘Finally, we have white smoke.’ Presumably he’s referring to smoke from the burning of ballot papers during a papal election, rather than from the smouldering ruins of the Greek economy...
The details of the deal are sketchy for now. The official said the agreed fiscal consolidation targets would see a budget deficit of 0.25% of GDP this year becoming a 0.5% surplus next year, rising to a 3.5% surplus in 2018.
What Greece would do with non-performing loans, how the country’s privatisation fund will operate, when the bailout tranches will be released and indeed the exact size of the rescue package (€86bn is the upper limit) remain to be seen.
They are unlikely to be especially surprising, however. Greece’s will to resist in any significant way died when Prime Minister Alexis Tsipras caved during their torturous negotiations last month.
Stumbling blocks remain, of course. The agreement might be rejected by the Greek or (more realistically) German parliaments, both of which could scupper the whole thing, though that remains unlikely.
The bigger question is debt relief, without which Greece will struggle to escape the shackles of depression and permanent austerity. The IMF has said it will not take part in this bailout without debt relief, but Germany and others are adamant that any relief (most likely maturity extensions rather than a classic ‘haircut’) must follow evidence that reforms have been successfully implemented.
It’s still unknown whether the IMF is party to this morning’s agreement, though a draft of the deal seen by Greek newspaper Ekathimerini listed 35 conditions that Tsipras needed to fulfil before the bailout funds would become available, including scrapping tax breaks for the islands and deregulating the energy market. Could that be the evidence Germany was looking for?
In either case, Greece will surely fulfil these conditions, because it can’t afford not to. A €3.2bn repayment to the ECB looms on August 20, and Greece needs the bailout funds to pay it. After all this effort and pain it would be ludicrous to let itself fall at the final (and lowest) hurdle.
The crisis may be over, and over the next year or so, Greece may return to some kind of normality. Depending on how successfully the reforms are implemented and whether it gets meaningful debt relief, however, it may find prosperity remains a very distant dream.