August 14, 2015
After an all-night session and a lot of drama, the Greek Parliament voted in favor of the third bailout deal. Amid fierce debates, personal accusations, complaints against Zoe Konstantopoulou, the President of the Parliament, for impeding the process, and a deeper rupture inside Syriza party, Greek Minister of Finance Tsakalotos is now negotiating -or better delivering- the outcome of the voting and expects from its counterparts the first tranche of around 24 billion euros to be dispatched to Greece.
The majority of Eurozone leaders have welcome the result and stated that Greece is on the right path. For that reason, they added, Greece should be shown solidarity and support. The implementation of the program and the firm commitment of the Greek government to make this bailout succeed have been received with content by Eurozone leading figures.
The Greek government has completely adjusted its program and priorities towards the successful voting of the bailout, having left behind a party in full unrest. 42 Syriza MPs voted against or abstain from voting yesterday, thus widening the gap between the Tsipras team and those supporting an alternative route. In this respect, there are many questions on the next moves Alexis Tsipras will choose to follow. Will a confidence vote be brought to the Parliament after August 20? Will that be a call for elections? Will the PM decide to move on under the current fragile balances, and wait until October (i.e. second phase of voting and possible discussion of debt restructure/relief) so that it can capitalize its work so far, given also the support media blatantly show to Alexis Tsipras despite growing social and political grievances? Each one of these options is open for the moment.
Fact No 1: The Bridge Loan
The bridge loan is what Germany’s Minister of Finance Schauble has proposed. The draft of the loan has been delivered to the Greek government, despite unofficial statements for the opposite. The draft was already prepared, even before the Greek voting yesterday, and it was just a matter of time for Germany to put it in the table. Why proposing this intermediate plan? Because despite positive and supportive statements for the effort the Greek government has put to the bailout deal since July 12, Europeans know that this deal is truly harsh and really hard to get implemented by the Greek authorities. So they keep a second door open, and if Minister Tsakalotos is convincing during today’s Eurogroup, this plan will be abandoned and Greece will receive the fist tranche of the package destined to recapitalise the banks and pay ECB bonds in August 20.
Fact No 2: No Debt Haircut
Despite statements, especially from the French Minister of Finance Sapin, that the request of the Greek side for re-evaluation of its sovereign debt is planned to be discussed in October, it is highly unlikely that this discussion will take place. As we have clearly stressed out in a previous post, elections in Spain, Portugal and Ireland, expected in autumn, are going to block such a delicate issue. All three countries have unsustainable sovereign debts, and considering the fact that France and Italy are also questioning the viability of their own debts, Eurozone is not going to trigger such a tricky debate. In addition to that, there is another sensitive part in the whole thing: debt restructure or haircut, if finally done, will be coupled with possible bail-in or it would just mean extension of debt maturity in the next 40-50 years. This practically means nothing for Greece, as nominal cut would not signify a fresh restart for the local economy and, hence, would not create a more trusted business environment that could incite investments and long-term financial projects.
Fact No 3: What is going on with the IMF?
The complexity of the Greek case is further intensified when the IMF is included in the discussion. The Fund has made its voice clear, repeatedly pointing out that without debt restructure, there is no way to participate in the third bailout. Here there is another factor that could be equally problematic for Greece: Schauble stated yesterday that without IMF participation in the program, Eurozone should really think of putting forth a bridge loan, and then discuss again how the IMF can get involved later. However likely or not this might sound, it is reality. At the end of the day, Greece might be left with the bailout’s fiscal side burdens in the one hand, and the insecurity of the bridge loan on the other, waiting for Eurozone and the IMF to finally decide on the financial side of the bailout, causing more instability and panic in the Greek political system.
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