EurActiv.com

EU news and policy debates across languages

28/09/2016

Germany sceptical over Greek bailout deal, Varoufakis too

Euro & Finance

Germany sceptical over Greek bailout deal, Varoufakis too

Angela Merkel and Alexis Tsipras

[Bundesregierung]

Greek lawmakers will hold an emergency parliament session today for a crucial vote on ratifying a hurriedly-concluded bailout deal, but Germany  has cast doubt on the agreement.

Greece and its creditors reached a technical agreement on a third international bailout after marathon talks in the early hours of Tuesday morning but the deal, which Greek Prime Minister Alexis Tsipras says should promptly unlock default-saving funds for his debt-crippled country, must still be approved by eurozone member states.

>>Read: Greece agrees bailout deal, averts default

A Greek government source said Tsipras had called an emergency session of parliament for Thursday, and eurozone finance ministers will then meet the following day to give their verdict on the deal, Eurogroup President Jeroen Dijsselbloem’s spokesman said on Twitter.

As eurozone ministers prepared to examine the accord in Brussels on Friday, Tsipras said he was confident the 400-page document — set for a parliamentary vote in Athens late on Thursday night — would be approved.

“I am and remain confident that we will succeed in reaching a deal and loan support … that will end economic uncertainty,” he said.

But in an apparent swipe at Germany, the 41-year-old premier said certain EU states had a “hidden plan to reshape the eurozone, using Greece as the excuse.”

“Greece will not give them the excuse,” he said.

Caution

Berlin, however, has urged caution.

“We have formulated questions,” Germany’s finance ministry said in a statement. “These are part of the review process which is not yet completed.”

German newspaper Bild cited a two-page finance ministry document that raised questions about Greece’s debt sustainability, the role of the International Monetary Fund and over privatisations.

Berlin is also unhappy about Greece’s annual budget targets being scaled back, Bild said.

Greece and its creditors are under pressure to finalise the €85 billion deal by August 20 when Athens must repay some €3.4 billion to the European Central Bank.

Separately, EU sources said Greece will tumble back into deep recession this year.

The Greek economy, which crawled out of a six-year recession only in 2014, will shrink 2.3 percent in 2015 and another 1.3 percent in 2016, they said.

Growth should then return, running at 2.7% in 2017 and 3.1% in 2018, the sources said.

Greece has repeatedly complained that the austerity measures demanded by its creditors — the EU, the ECB and the International Monetary Fund — in return for two previous bailouts have only hurt an economy that has contracted by a quarter since the crisis broke.

The latest rescue package calls for a gas market overhaul, ends most early retirement schemes, eliminates fuel price benefits for farmers and raises some taxes, among other measures.

The government said Greek banks — which were forced to shut down for three weeks as panicked customers withdrew billions of euros — would immediately receive €10 billion from the package, and will be fully recapitalised by the end of the year.

Tough talks

The draft deal comes after months of acrimonious negotiations between the creditors and Greece’s left-wing government, which took power in January.

Investors reacted with relief to news of the outline deal, with shares in Athens closing Tuesday 2.14% higher for a fourth straight day of gains.

But the positive run ended on Wednesday with the ATHEX index closing 1.93% down.

An EU source said it was unclear if the bailout would be finalised by the August 20 deadline — leaving open the possibility that Athens might need a few days of emergency funding.

“In that case, we need all the member states” to approve such a loan, the source added, in what could pose a fresh headache for negotiators.

Finland’s Finance Minister Alexander Stubb — one of the hardliners on the bailout accord — told AFP that Helsinki would carefully scrutinise all the details.

Tsipras is under pressure from hardliners in his radical left Syriza party who say the new accord will pile further austerity on a weakened economy and goes against the party’s campaign pledges. He suffered a major mutiny by Syriza members in two previous votes on the bailout.

The embattled prime minister has warned that he may be forced to call early elections if the dissent continues.

An analyst at Capital Economics urged caution. “While Greece appears finally to be on the verge of receiving a third bailout, the extremely optimistic economic and fiscal projections underlying the plan suggest that it might not last for very long,” he said.

Varoufakis pessimistic too

Meanwhile, Greece’s former finance minister Yanis Varoufakis on Wednesday warned that the latest bailout deal was doomed to fail despite Prime Minister Alexis Tsipras saying he was “confident” of ending economic uncertainty.

In a implicit criticism of his former ally Tsipras, he told BBC radio: “Ask anyone who knows anything about Greece’s finances and they will tell you this deal is not going to work.”

“The Greek finance minister… says more or less the same thing,” he added.

The controversial politician resigned the day after Greeks voted against a proposed bailout in a July 5 referendum, accusing the country’s creditors of “terrorism.”

Varoufakis told the BBC that Germany’s veteran Finance Minister Wolfgang Schaeuble had had to “go to the Bundestag and effectively confess this deal is not going to work”.

“The International Monetary Fund… is throwing up its hands collectively despairing at a programme that is simply founded on unsustainable debt… and yet this is a programme that everybody is working towards implementing,” he said.

Background

Greece and its international lenders reached an €85 billion bailout agreement on 11 August after nailing down the terms of new loans needed to save the country from financial ruin.

The deal, which came after 23 hours of talks that continued through the night, must still be adopted by Greece's parliament and by euro zone countries.

The currency bloc's finance ministers are expected to give their approval on Friday in time for Greece to make a crucial €3.2 billion debt repayment that falls due next week.

When creditors agreed in July to negotiate a deal aimed at keeping it afloat and in the euro zone, Greece committed to implementing major reforms, such as scrapping early retirement, by the end of October. Lenders demanded, for example, an increase in the retirement age to 67 from the nominal 62 that falls significantly depending on the number of years worked and family status.

According to the plan, the Greek government would have to immediately implement 35 measures before the deal can kick in.

These include energy market deregulation, changes to shipping taxes, price cuts in generic drugs, a review of the social welfare system and phasing out early retirement. The talks saw Athens committing to a primary deficit of 0.25% of gross domestic product (GDP) in 2015, and a surplus in 2016.