It looks like Greece may finally be inching toward a bailout deal after weeks of stalemate.
Greece’s economy minister Girogos Stathakis presented the country’s new proposals, submitted over the weekend, as a masterstroke in an interview with the BBC’s Robert Peston on Monday.
Stathakis’ interpretation of the day’s events make it seem like a major victory for Greece. The austerity measures that European lenders have demanded appear to come through further tax on business and the wealthy (the government’s preferred methods), while there will be no more pension or public sector wage cuts.
Stathakis suggests there will be some increases on the VAT applied to certain items, but totemic ones like electricity will be exempt. All this without crossing the government’s “red lines” — commitments it made before being elected.
Still, the Eurogroup meeting of finance ministers broke up on Monday without a formal agreement, since they didn’t have enough time to mull the proposals from Athens.
That means there isn’t likely to be a deal Monday at at the emergency summit of European leaders either. But even the usually stern Eurogroup chief, Jeroen Dijsselbloem, agreed that the proposals from Greece were a “basis to restart the talks” and a “positive step.”
Greek markets are looking at the prospect of a deal with confidence too: Athens stocks rallied by 9% today, with banking stocks up by 20%:
The country wants to unlock the last portion of its bailout agreement, worth €7.2 billion ($US8.2 billion, £5.16 billion). The country’s international creditors want to see further fiscal austerity and structural economic reforms before it hands over the money, but the governing Syriza party was elected in large part because of its opposition to those measures.
Finance minister Yanis Varoufakis said the country is heading towards a deal — but it’s not the first time he’s said that.
There are two major questions about today’s events:
Firstly, if a compromise was this easy, why did it take so long in the making? Why did the positions seem so entrenched just a few short days ago, if this deal was possible?
And secondly, who’s given in on what? It all looks like a masterstroke of diplomacy at the moment, but it remains to be seen what sort of deal can actually satisfy both Tsipras’ party’s hardliners and Germany’s governing centre-right party.
Robert Kuenzel of Daiwa Capital Markets expressed some scepticism about the details of the Greek proposal in a note Monday afternoon:
A key aspect of Greece’s latest offer is its apparent quid-pro-quo nature, whereby Greece expects some form of debt relief in return, and probably without further strings attached. That is not likely to find a favourable response from creditors who are currently in the process of defining a list of “prior actions” — i.e. policy measures requiring implementation before a disbursement of new funds to Greece can be considered.
Barclays strategics George Saravelos outlines what the next steps are politically, showing how many potential pitfalls are still left:
It is likely that the Greek PM would first attempt to obtain approval from the SYRIZA party’s 200-strong Central Committee before bringing an agreement to parliament. In the event of failure at the party level, a referendum would likely be called. In the event of party approval, a vote would be likely taken to the parliamentary floor. Depending vote may take between 2 days to a week.
Recall that at the end of May Tsipras managed to halt an internal party attempt to undermine his negotiating stance, but only by 95 to 75. Only a handful of minds need to change against the Prime Minister for him to lose another vote.
And if he manages it, he’s still got his own parliamentarians to convince. Here’s Saravelos again:
It will remain a major challenge for the Greek PM to successfully pass a potential agreement through parliament. Local press reports that 10-40 SYRIZA MPs are likely to dissent (the government has an 11 MP majority), while overnight the Independent Greeks junior coalition partner (12 MPs) has also raised the possibility of withdrawing from government. How the political process plays out largely depends on the number of MPs the current government loses. A loss of less than thirty parliamentarians may force a change in coalition to include the two small moderate parties in parliament (PASOK and the River) jointly controlling 30 MPs. More substantial losses requiring the support of major opposition party New Democracy would open up the possibility of broader changes to the government or a referendum.
A referendum wouldn’t be quick — the deadline for the June 30 International Monetary Fund (IMF) payments would almost certainly be missed in that scenario, and it would likely push right up against the July 20 payment due to the European Central Bank (ECB).