Greece’s bailout negotiations are getting underway again on Thursday morning, after a late-night session with Prime Minister Alexis Tsipras produced no agreement.
There’s been no movement since Greece’s creditors (particularly the International Monetary Fund) rejected the country’s proposed deal yesterday.
As a result, Greece is likely to dominate the packed agenda of the EU leaders’ summit on Thursday and Friday.
Though progress towards an agreement has clearly been made on some issues, but there’s a lot of disagreement about the pension system, as well as on the timing of various reforms and how the government should improve its financial position.
The country’s radical leaders are desperately trying to unlock the last €7.2 billion (£5.13 billion, $US8.06 billion) bailout tranche from its creditors. To do that, the IMF, European Central Bank and European Commission want promises of austerity and economic reform — much of which the Syriza-led government elected in January has promised to refuse to agree to, or even reverse.
There was a domestic reminder for Tsipras on Thursday morning that his own supporters will be extremely difficult to win over with what’s currently on the table. According to Reuters, Syriza parliamentary speaker Nikos Filis said that “the lenders’ demand to bring annihilating measures back to the table shows that the blackmail against Greece is reaching a climax.”
From what we know of the deal so far, Athens has a particular focus on protecting lower-income pensioners, and don’t want to specify a new and much higher retirement age. The creditors want both higher retirement ages and more direct pensioner contributions to their own healthcare.
The Greek government also wanted 93% of its fiscal consolidation to come from tax measures, while the IMF is sceptical about some of the increased business taxes it’s proposing, fretting that the changes will make the country even more uncompetitive.
These may sound like fairly minor differences, given that the alternative is defaulting on debt repayments and kicking off a process that could force the country out of the eurozone.
But Tsipras was elected in opposition to precisely what the institutions are now trying to make him do — his own political position would be shaky if he accepted them, and they’re against what he’s been campaigning for his entire adult life.
BNP Paribas analysts summed up the dark outlook if there’s no deal by Friday:
Failure to formalise a deal by the end of this week would very likely mean no further extension of emergency liquidity assistance, as well as capital controls and limits to bank deposit withdrawals. It would not automatically herald Greece’s departure from the euro, however, even though this might well be what the markets would conclude.
Though Greece’s next payment isn’t due until June 30, any deal has to both be approved by the Greek parliament, Tsipras’ own party (a very hard sell) and the German Bundestag. If there’s nothing concrete by the weekend, the deal simply may not have enough time to process.