BRUSSELS – Eurozone leaders made Greece surrender much of its sovereignty to outside supervision Monday in return for agreeing to talks on an €86 billion bailout to keep the near-bankrupt country in the single currency.
The terms imposed by international lenders led by Germany in all-night talks at an emergency summit obliged leftist Prime Minister Alexis Tsipras to abandon promises of ending austerity and could fracture his government and cause an outcry in Greece.
“Clearly the Europe of austerity has won,” Greek Reform Minister George Katrougalos said.
“Either we are going to accept these draconian measures or it is the sudden death of our economy through the continuation of the closure of the banks. So it is an agreement that is practically forced upon us,” he told BBC radio.
If the summit had failed, Greece would have been staring into an economic abyss with its shuttered banks on the brink of collapse and the prospect of having to print a parallel currency and in time, exit the European monetary union.
“The agreement was laborious, but it has been concluded. There is no Grexit,” European Commission President Jean-Claude Juncker told a news conference after 17 hours of bargaining.
He dismissed suggestions that Tsipras had been humiliated even though the final euro summit statement insisted repeatedly that Greece must henceforth subject much of its public policy to prior agreement by bailout monitors.
“In this compromise, there are no winners and no losers,” Juncker said. “I don’t think the Greek people have been humiliated, nor that the other Europeans have lost face. It is a typical European arrangement.”
Tsipras himself, elected five months ago to end five years of suffocating austerity, said he and his team had “fought a tough battle” and had to make difficult decisions. He said he had secured an improved promise of debt restructuring and “averted the plan for financial strangulation.”
Greece won conditional agreement to receive a possible €86 billion ($95 billion) over three years, along with an assurance that eurozone finance ministers would start within hours discussing ways to bridge a funding gap until a bailout — subject to parliamentary approvals — is finally ready.
That will only happen if he can meet a tight timetable for enacting unpopular reforms of value added tax, pensions, quasi-automatic budget cuts if Greece misses fiscal targets, new bankruptcy rules and an EU banking law that could be used to make big depositors take losses.
German Chancellor Angela Merkel said she could recommend “with full confidence” that the Bundestag authorize the opening of loan negotiations with Athens once the Greek parliament has approved the entire program and passed the first laws.
Asked whether the tough conditions imposed on a desperate Greece were not similar to the 1919 Versailles treaty that forced crushing reparations on a defeated Germany after World War I, she said: “I won’t take part in historical comparisons, especially when I didn’t make them myself.”
The deterioration of the Greek economy since Tsipras won office in January, and particularly in the last two weeks, had led to a much higher financing need, she said.
One senior EU official calculated the cost to the Greek state of the last two weeks of political and economic turmoil at €25 billion to €30 billion. A eurozone diplomat said the full damage might be closer to €50 billion.
Tsipras accepted a compromise on German-led demands for the sequestration of Greek state assets worth €50 billion, including recapitalized banks, in a trust fund beyond government reach, to be sold off primarily to pay down debt. In a gesture to Greece, some €12.5 billion of the proceeds would go to investment in Greece, Merkel said.
The Greek leader had to drop his opposition to a full role for the International Monetary Fund in the next bailout, which Merkel had insisted on to win parliamentary backing in Berlin.
In a sign of how hard it may be for Tsipras to convince his own Syriza party to accept the deal, Labor Minister Panos Skourletis said the terms were unviable and would lead to new elections this year.
Six sweeping measures including spending cuts, tax hikes and pension reforms must be enacted by Wednesday night and the entire package endorsed by parliament before talks can start, the leaders decided.
In almost the only concession after imposing its tough terms on Tsipras, Germany dropped a proposal to make Greece take a “time out” from the eurozone that many said resembled a forced ejection if it failed to meet the conditions.
Tsipras was subjected to a 17-hour browbeating by leaders furious that he had spurned their previous bailout offer on more favorable terms in June and held a referendum last week to reject it. Only France and Italy worked to try to soften the terms being imposed on Greece.
Some diplomats questioned whether it was feasible to rush the package through the Greek parliament in just three days. Tsipras is set to sack ministers who do not support his negotiating position and make dissident lawmakers in his Syriza party resign their seats, people close to the government said.
Even if this week’s immediate rescue succeeds, many EU diplomats question whether an unstable Greece will stay the course on a three-year program with a return to intrusive quarterly monitoring on the ground in Athens.
Merkel, whose country is the biggest contributor to eurozone bailouts, said from the start that she would drive a hard bargain against a backdrop of mounting opposition at home to more aid for Greece.
The final sticking point was Germany’s insistence on an independent external trust fund to control state assets for privatization. Berlin initially wanted to use a structure in Luxembourg managed by its own national development bank, KfW, but eventually relented.
One diplomat said that was tantamount to turning Greece into a “German protectorate.” But Merkel declared the matter a “red line” for Germany.
Eurozone finance ministers were tasked with finding sources of immediate bridge funding for Greece if it passed the laws, to prevent it defaulting on a key payment to the ECB next Monday.
Options included releasing European Central Bank profits on Greek bonds, tapping an emergency fund run by the European Commission, or bilateral loans from friendly countries such as France. Two French sources denied any bridging loan was planned.
Finance ministers said Greece needed €7 billion of funding by July 20, when it must make a crucial bond redemption to the ECB, and a total of €12 billion by mid-August when another ECB payment falls due.
The ECB was expected to maintain emergency funding for Greek banks to keep them just afloat this week but no large increase was likely and the banks would need a major recapitalization before they could reopen, central bank sources said.
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