Ar­maged­don averted, but coun­try faces deep­en­ing re­ces­sion and so­cial un­rest

Financial Mirror (Cyprus) - - FRONT PAGE - By Costis Stam­bo­lis

Af­ter an ex­haus­tive 17-hour ses­sion which started last Sun­day evening only to con­clude late on Mon­day morn­ing, the Eu­ro­zone heads of state con­clave worked out yet another gi­gan­tic bailout deal - the third since 2010 - to help stave off com­plete bank­ruptcy in Greece and keep the coun­try afloat as an in­te­gral part of the Eu­ro­zone.

What be­came most abun­dantly clear dur­ing this ar­du­ous and never-end­ing all night ses­sion was the de­ter­mi­na­tion of a small but per­sis­tent group of eu­ro­zone gov­ern­ment of­fi­cials from the north and cen­tral Euro­pean coun­tries who most def­i­nitely wanted Greece kicked out of the eu­ro­zone block on po­lit­i­cal, eth­i­cal and fi­nan­cial grounds. This would have been an un­prece­dented ac­tion forced upon the other Eu­ro­zone mem­bers with the ar­gu­ment that Greece’s con­tin­u­ing pres­ence in the Eu­ro­zone was detri­men­tal to the Euro­pean pro­ject be­cause of its prob­lem­atic and deficit prone fi­nances, and re­cal­ci­trant na­ture.

Greece, by sys­tem­at­i­cally avoid­ing any kind of public pol­icy re­form, was un­der­min­ing Eu­ro­zone’s cred­i­bil­ity and pre­sented a bad ex­am­ple to other coun­tries and there­fore had to be ex­pelled. The euro’s slide against the dol­lar over the last six months also was a strong case in point, never mind the fact that a cheaper euro was help­ing boost Euro­pean ex­ports.

With­out doubt the terms agreed in this latest bailout deal are ex­tremely harsh but could not be dif­fer­ent given Alexis Tsipras’s far left gov­ern­ment’s five month so­cial­ist ex­per­i­men­ta­tion and open de­fi­ance of Euro­pean norms, dur­ing which time the econ­omy went into an un­con­trolled down­ward spi­ral cul­mi­nat­ing in cap­i­tal con­trols, an in­def­i­nite bank hol­i­day, sus­pen­sion of trad­ing on the Athens Stock Ex­change, thou­sands of job losses and mount­ing bank­rupt­cies.

Although the foun­da­tions of a new bailout deal for Greece were agreed in Brus­sels on July 13, tough ne­go­ti­a­tions still lie ahead to end its fi­nan­cial cri­sis. At a news con­fer­ence, EU Pres­i­dent Don­ald Tusk de­scribed the agree­ment as an “aGreek­ment” but as he said there was clearly a lack of trust on the cred­i­tor side, with Ger­man chan­cel­lor An­gela Merkel among those say­ing the re­la­tion­ship had to be “re­built” fol­low­ing months of tor­tu­ous talks. She added that fu­ture fund­ing was con­di­tional on the con­tin­ued in­volve­ment of the In­ter­na­tional Mon­e­tary Fund - a sce­nario Greece had tried hard to block.

Many Greeks re­acted fu­ri­ously to the deal, par­tic­u­larly Ger­many’s role in in­sist­ing on con­tin­ued aus­ter­ity in re­turn for help. Cru­cially, the pack­age will not re­sult in an im­me­di­ate cash in­jec­tion for the coun­try’s cash-starved banks which re­main closed, but it was un­der­stood that the pos­si­bil­ity of a bridg­ing loan will be dis­cussed later this week. The Euro­pean Cen­tral Bank did noth­ing on Mon­day to ease the squeeze on bank cash - with with­drawals still lim­ited at 60 eu­ros per day.

The plan agreed in Brus­sels in­cludes the cre­ation of a EUR 50 bln as­set fund by Greece, based in Athens, which would be partly used to re­cap­i­talise the banks. Should the Greek par­lia­ment agree the fund and other re­forms such as spend­ing cuts, the prospect of a third bailout to­tal­ing EUR 86 bln over three years will be up for dis­cus­sion. Prime Min­is­ter Tsipras said the ne­go­ti­a­tions had been a “tough bat­tle” but he in­sisted he had man­aged to avert “the plan of a fi­nan­cial col­lapse and bank­ing sys­tem col­lapse”.

Upon his re­turn to Athens on Mon­day, Tsipras faced a re­bel­lion within his own gov­ern­ment af­ter he ac­cepted the most in­tru­sive pro­gramme ever mounted by the EU in or­der to keep Greece in the eu­ro­zone. In­evitably, he will have to rely on op­po­si­tion sup­port to pass a swath of eco­nomic re­form mea­sures by Wed­nes­day’s EU-im­posed dead­line, or face the coun­try’s bank­ruptcy as a grow­ing num­ber of far-left MPs voiced strong op­po­si­tion to the deal. The rul­ing Syriza party’s com­mu­nist Left Plat­form, which con­trols al­most 30 seats in par­lia­ment, called it a “hu­mil­i­a­tion of Greece”.

The leader of the In­de­pen­dent Greeks, the rightwing coali­tion part­ner, also said that his party could not agree to the ac­cord, call­ing it a “coup by Ger­many” and its hard­line eu­ro­zone al­lies, the Nether­lands and Fin­land. But other Greek po­lit­i­cal lead­ers said that there was no dan­ger for leg­is­la­tion not go­ing through par­lia­ment be­cause it had the wide sup­port of main­stream op­po­si­tion law­mak­ers, who would make up any gov­ern­ment de­fec­tions in the 300-mem­ber leg­is­la­ture.

The hard-fought agree­ment averted the gravest cri­sis fac­ing the EU and its eu­ro­zone core, post­pon­ing, at least for the time be­ing, Greece’s exit from the sin­gle cur­rency and the chaos that could fol­low. Tsipras ac­cepted plans for a high level of do­mes­tic eco­nomic su­per­vi­sion by the bailout mon­i­tors, some­thing which he had wanted to avoid at all cost, in­clud­ing the IMF and a public ad­min­is­tra­tion over­haul over­seen by the Euro­pean Com­mis­sion. Now, he must im­ple­ment a list of de­mand­ing eco­nomic pledges, in­clud­ing a repo­si­tion­ing of the coun­try’s value added tax sys­tem and sweep­ing pen­sion re­forms, by en­act­ing leg­is­la­tion by July 15 as a con­di­tion for a for­mal start of ne­go­ti­a­tions later this week on a fi­nanc­ing pack­age to stave off bank­ruptcy.

Eu­ro­zone of­fi­cials said that once Greece had taken steps to leg­is­late re­forms there would be an agree­ment that eu­ro­zone gov­ern­ments could “rec­om­mend with full con­vic­tion” to their par­lia­ments. Pres­i­dent Fran­cois Hol­lande of France said: “At some point we thought we might lose a mem­ber of the eu­ro­zone, but Europe would have re­treated; we needed to suc­ceed.”

Mean­while, the de­lay in reach­ing a deal pre­vented the Euro­pean Cen­tral Bank from pro­vid­ing Greek banks with much needed ex­tra emer­gency fi­nance. But, fol­low­ing the an­nounce­ment of the agree­ment, the ECB said it would main­tain Greek banks’ EUR 89 bln emer­gency liq­uid­ity as­sis­tance (ELA) life­line. That means that there will be no im­me­di­ate re­lief for Greece’s ail­ing bank­ing sys­tem with eco­nomic con­di­tions wors­en­ing from day to day. The IMF, also, said late on Mon­day that Greece had missed a sec­ond pay­ment, mean­ing it now needed to clear EUR 2 bln in ar­rears be­fore the in­sti­tu­tion could lend to Athens again.

In­vestors wel­comed the ac­cord, push­ing stocks in Europe up by al­most 2%, but there was no eu­pho­ria, re­flect­ing the po­lit­i­cal ob­sta­cles that still lie ahead — not least in Athens. Sov­er­eign debt mar­kets ini­tially ral­lied be­fore cool­ing later in the day.

With trust, con­cern­ing Greece’s po­si­tion in Europe and its fi­nan­cial and com­mer­cial deal­ings in gen­eral, se­ri­ously un­der­mined fol­low­ing this latest cri­sis, the rep­u­ta­tion of Greek com­pa­nies is equally tar­nished, and will there­fore make it ex­tremely dif­fi­cult for them to com­pete in the in­ter­na­tional arena. The amount and ef­fort needed to con­tinue op­er­at­ing, let alone grow, in a highly com­pet­i­tive global en­vi­ron­ment, given the re­stric­tions and fi­nan­cial bur­dens that will be im­posed on them through this latest bailout pro­gramme, will sim­ply be huge and it re­mains to be seen how many will ac­tu­ally sur­vive.

Greece’s po­si­tion in the eu­ro­zone may for the mo­ment ap­pear se­cure, although frag­ile, but un­cer­tainty as to the re­ces­sion­ary eco­nomic con­di­tions that will in­evitably re­sult is ex­tremely high with the coun­try most likely to face soon a huge wave of so­cial un­rest. Eco­nomic growth will ap­par­ently re­main a dis­tant mi­rage for the fore­see­able fu­ture, with pun­dits fore­cast­ing Greece’s slow and ag­o­nis­ing death within the euro.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.