As the latest deal between Greece and its international creditors edges ever nearer to completion following marathon 16 hour talks in Brussels, many parties involved in negotiations have expressed scepticism over the long-term viability of the imposed reforms and spiraling debt figure. The deal, which required Greek Prime Minister Alexis Tspiras to depend on backing from opposition parties after some Syriza rebels withheld their support, constitutes tax hikes, pension reforms, privatisation and the reining in of powerful workers unions. In return Greece will receive 86 million euros over a 3 year period, taking the total debt figure to over 400 billion euros, or about 180% of annual GDP. A bridging loan of 9 billion euros, courtesy of the European Stability Mechanism programme (ESM), will facilitate the reopening of Greek banks whilst negotiations are concluded, but capital restraints will initially remain in place.
Greece is not passing these measures because it believes them to be a cure to their financial woes, but rather they are the lesser of two evils. International commentators widely agreed that a refusal of the bailout conditions could have signaled Greece’s exit from the EU, which would leave it crippled, isolated, and inevitably cut off from financial markets. The head of the ESM, Klaus Regling, has warned that Greece’s banking system would collapse without the support of a third bailout. This would have severe consequences for the country. Any timescale for recovery would likely be measured in decades, rather than years. Equally, the reforms demanded to release the funds will place a strain on Greece’s flagging economy. Perhaps most controversially, 50bn euros will be raised through the privatisation of the country’s electricity infrastructure. This process will be overseen by technocrats from the EU, which has proved highly contentious with a Greek public already sceptical of the ‘troika’. However, the Greek economy cannot continue as if it’s business as usual. This third bailout gives the sense of a last-chance saloon, as shown by numerous mentions by negotiators of a lack of trust, due in-part to previous broken promises by Greece over the last two bailouts. Germany in particular has demanded cast iron guarantees that sufficient measures will be implemented. If the Greece were to miss another repayment deadline, for which there is plenty of opportunities – the final payment of even the second bailout is due in 2054 – then one gets the sense there would be little, if any, in the way of support for Greece, and their exit from the European Union almost inevitable.
Whether or not Greece can retain its place in the EU remains to be seen. A lot depends on how it reforms over the following three years, and questions still remain if it can ever become a streamlined, efficient and market driven economy. Such changes will be painful for the country. There also remains the question of debt ‘haircuts’, which notably went unmentioned whilst the terms of the third bailout were being negotiated. Private creditors of Greece agreed to accept haircuts of up to 50% on liabilities, saving the Greek government of the time 100 billion euros. The issue with international creditors such as the IMF and the ECB is that other countries, notably Ireland, Portugal and Spain received similar bailouts but have been sticking to their repayments. Any cuts in the Greek debt would therefore be contentious with countries who received no such consideration, all of which is harmful to the image of unity among European states. If Greece is able to steer its economy onto the right track then perhaps it will be in a stronger position to negotiate with its creditors. But as it is, the country is desperate, a fact that was perhaps exploited by hardliners in negotiations to squeeze as many reforms from Greece as possible.
All the while, Tsipras must carefully negotiate a political minefield to ensure these measures are implemented. A cull of rebels from his party who voted against the reforms is underway, with left-wingers being replaced with more moderate figures. Perhaps the most high-profile case was the resignation of Yanis Varoufakis mid-way through negotiations, whose stance was seen as excessively stubborn by creditors. Syriza is not one single party, but rather a coalition of many who Tsipras must successfully court in order to traverse the coming years. This may prove difficult, if not impossible, in the face of inevitable industrial action, protests and riots as the effects of the bailout conditions start to take their toll. In what is essentially a left-wing coalition elected on an anti-austerity platform, in time, how many MPs will stand by these measures? Despite this deal, Greece staying in the EU is anything but a certainty, but there is one unfortunate truth. As ever, the majority of hardship to come will be shouldered by those in Greece who are the most vulnerable.
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