Agreeing to long-resisted reforms is just the start for Greece

The Economist

AT ONE point during marathon euro-zone talks in Brussels on the evening of July 12th, Alexis Tsipras was a few minutes late returning from a break.

 A rumour took flight: the Greek prime minister, facing brutal demands from his 18 fellow euro-zone leaders in exchange for an agreement to begin talks on a new bail-out, had fled the building. It turned out that he was in the bathroom.That it seemed plausible for Mr Tsipras to have pulled a personal Grexit sheds light on the extraordinary pressure the prime minister faced during the all-night talks. At 6am, locked in discussions over a controversial privatisation fund with Angela Merkel, Germany’s chancellor, and François Hollande, the French president, Mr Tsipras did indeed come close to walking out. But spurred by pressure from Donald Tusk, the chair of the summit, the three eventually managed to forge a deal that could form the basis of a multi-billion-euro bail-out, Greece’s third in five years.

In exchange for the package, which could amount to as much as €86 billion ($95 billion) over three years, Mr Tsipras has had to sign up to precisely the sort of demands his Syriza party railed against during its successful election campaign in January. The proposals in a compromise deal offered by Mr Tsipras the previous week, most of which were overwhelmingly rejected by Greek voters in a referendum a few days earlier, mark just the beginning of the new deal. Those pledges, on matters like VAT and pension reform, must be legislated by the Greek parliament no later than July 15th. A week later further legislation must follow, including a total overhaul of Greece’s judicial system.

But that is just the start, as Mrs Merkel had warned it would be at a previous summit last week. Greece must also enact further pension reforms, open up professions, loosen trading rules, privatise its electricity network, reform its labour market and strengthen its banks. Once that is out of the way, Mr Tsipras’s government, if it is still standing, will have to produce plans for “de-politicising” the Greek administration, a task that has eluded every government since Greece obtained its independence from the Ottomans in 1832. It must accept complete oversight from the hated “institutions” (once known as the troika) who will return to Athens to oversee the work of Greek officials. At the insistence of the Dutch prime minister, Mark Rutte, it will have to roll back any legislation it has passed since taking office that violates previous bail-out agreements (or compensate for their consequences by passing new laws). Most painful of all, it will have to deposit what the seven-page summit statement calls “valuable Greek assets” into an independent privatisation fund with the aim of raising €50 billion over the course of the bail-out. 

These commitments, the statement notes dryly, “are minimum requirements to start the negotiations with the Greek authorities”. Talks over the details of the bail-out, including the fiscal path the battered Greek economy will have to tread, will follow, and they will hurt. Meanwhile, Mr Tsipras must hope that the other euro-zone parliaments that need to approve a bail-out (at current count, six: Germany, the Netherlands, Estonia, Finland, Slovakia and Austria) will find a way to overcome the utter vaporisation of trust between Greece and its creditors that last night’s talks laid bare. He must also hope that euro-zone finance ministers, meeting today in Brussels for the latest in an apparent never-ending carousel of summits, will strike agreement on the €12 billion in short-term financing Greece needs to meet its immediate obligations (ie, before the bail-out is agreed), including a €4.2 billion bill to the European Central Bank on July 20th. Ideas for how to manage that are thin on the ground. And Mr Tsipras must finally hope that Greece’s gasping banks can stay afloat for the next few days until the ECB feels minded to increase its liquidity support; today it maintained its current level of €89 billion.

As the details of the agreement emerged last night angry Greeks and their comrades spawned a social-media hashtag: #ThisIsACoup. Even if that is a stretch, it is worth asking what Mr Tsipras has to show for all this misery. He can point to four wins, most of them minor. First, Greece’s departure from the euro is no longer an immediate prospect. A plan for a temporary Grexit, pushed by Wolfgang Schäuble, Germany’s finance minister, was instantly scrubbed by the leaders last night. Second, Mr Tsipras won a concession on the proceeds of the €50 billion privatisation fund: half of it will be used to recapitalise Greece’s threadbare banks and one-quarter for unspecified “investments”, something Mr Tsipras will no doubt trumpet loudly in the difficult parliamentary debates to come in Athens. (Mrs Merkel had wanted to devote all the money to paying down debt.) Third, the deal could unlock up to €35 billion in investment from the European Commission, although the details remain vague. And finally, the statement contains a pledge to consider, “if necessary”, measures designed to loosen Greece’s debt load, such as an extension of maturities. Although Greece’s debt profile means the immediate impact of any such restructuring would be next to zero, it is nonetheless a meaningful achievement for a government that has ceaselessly urged a relaxation of its financial obligations.

As for the rest of the euro zone, there will no doubt be relief that the latest chapter of the Greek crisis has been closed, even if many more are to come. But when they emerge from their post-summit slumbers they will face two awkward questions. First, how can they expect a government whose identity was forged in opposition to austerity and foreign tutelage to implement reforms that stymied its far more pliant predecessors? And second, how can a euro zone that was created to drive integration and foster trust between its members thrive when it appears to have had precisely the opposite effect?