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30/09/2016

Second bailout vote to test Tsipras’ authority

Euro & Finance

Second bailout vote to test Tsipras’ authority

The Syriza-led government will have to rely on opposition votes to approve the bailout legislation. Anti-austerity protestor, Athens.

[linmtheu/Flickr}

Greek Prime Minister Alexis Tsipras tried to rally his Syriza party before a vote in parliament today (22 July) on the second package of measures demanded by international creditors to open talks on a new bailout deal.

Tsipras has faced a revolt in the left-wing Syriza party over the mix of tax hikes, market reforms and spending cuts demanded by lenders but is expected to get the package through parliament with the support of pro-European opposition parties.

Talking to Syriza officials on the eve of the vote, he said he aimed to seal the bailout accord, which could offer Greece up to €86 billion in new loans to bolster its tottering finances and ward off the threat of a forced exit from the euro.

“Up until today I’ve seen reactions, I’ve read heroic statements but I haven’t heard any alternative proposal,” he said, warning that party hardliners could not ignore the clear desire of most Greeks to remain in the single currency.

“Syriza as a party must reflect society, must welcome the worries and expectations of tens of thousands of ordinary people who have pinned their hopes on it,” he said, according to an official at the meeting.

Earlier government spokeswoman Olga Gerovasili said the government expected to wrap up bailout talks with the lenders by 20 August with negotiations expected to begin immediately after today’s vote in parliament.

Officials from the creditor institutions – the European Commission, European Central Bank and International Monetary Fund – are due in Athens on Friday for meetings with the government, Deputy Finance Minister Dimitris Mardas said.

Wednesday’s vote in parliament follows a first vote last week on the so-called “prior actions” on the mix of economic reforms and budget cuts demanded of Greece as a condition before the start of full bailout talks.

>>Read: Greek parliament approves bailout

The bill was passed but a revolt by 39 Syriza lawmakers who refused to back the measures raised questions over the stability of the government, which came to power in January on an explicit anti-austerity platform.

The heads of the centrist To Potami (The River) party and the center-left Pasok party both said they would back the Tsipras government over the bailout accord but demanded a clear “road map” from the prime minister about what would happen after that.

Denouncing the bailout, Syriza hardliner Rudi Rinaldi resigned from the party’s 13-member political committee, saying loading more austerity on to the stricken Greek economy would pile on more hardship but not keep the country in the euro.

“It is ideological, political and strategic default for Syriza,” he said.

Together with his coalition partners from the right-wing Independent Greeks, Tsipras has 162 seats in the 300-seat parliament. But last week’s rebellion cut his support to just 123 votes and any further defections may be seen as undermining prospects for reform.

Some government officials have suggested that if support dropped below 120 MPs – the minimum required to win a confidence vote if parliament voted with the lowest allowable quorum of 240 lawmakers – Tsipras would have to resign.

But it is unclear whether he would step down. If a confidence vote were actually held, he would almost certainly win with the backing of the pro-European opposition parties.

Tsipras seen as competent

Despite angering many Greeks by going on to ignore their 60% No vote at the 5 July referendum, Tsipras is still overwhelmingly regarded as competent. In an opinion poll published by the To Vima newspaper over the weekend, 68% named him the best man to be running the country right now, far ahead of any of his rivals.

And even after the broken promises, many voters believe he acts honestly and with their interests at heart – a break with past leaders, they are perceived as corrupt and beholden to powerful interests.

“With the popularity that he enjoys, with his abrupt maturing over the past couple of weeks, Tsipras has the legitimacy to implement reforms as well as the need to prove that his turnaround was justified,” Nikos Konstandaras, managing editor of Katherimini, wrote in an editorial last week.

“He will be under continual fire from his more revolutionary comrades in Syriza. However, if he keeps his head, if he avoids the arrogance of power, if he unites rather than divides, Alexis Tsipras will be in a position to serve his country well.”

Pensions, tax on farmers

Following last week’s vote, European authorities released billions of euros in emergency funding to allow Athens to meet debt payment deadlines and reopen banks closed three weeks ago to prevent a run on deposits collapsing the system.

Offering some encouragement, ratings agency Standard and Poor’s lifted its long-term sovereign credit rating on Greece to ‘CCC+’ from ‘CCC-‘, saying it believed default was no longer inevitable in the next six to 12 months following the move.

It said the chance of Greece leaving the eurozone was now less than 50%.

With normality slowly returning after the banks reopened on Monday (20 July), the government submitted the second bailout bill, which will focus on justice reform and banking issues.

The bill to be voted on today adopts into Greek law new European Union rules on propping up failed banks, decreed after the 2008 financial crisis and aimed at shielding taxpayers from the risk of having to bail out troubled lenders.

The so-called bank recovery and resolution directive (BRRD) imposes losses on shareholders and creditors of ailing lenders, in a process known as “bail-in”, before any taxpayers’ money can be tapped in a “bail-out” bank rescue.

The bailout bill also includes the adoption of new rules for the country’s civil justice system, aimed at accelerating lengthy judicial processes and cutting costs.

It also deals with sensitive issues affecting forced home foreclosures, which banks have committed not to proceed with before the end of the year.

However it will not include pension reforms curbing early retirement or increasing tax rates paid by farmers from 13% to a range of 26-33% – an issue strongly opposed by the conservative New Democracy party.

Instead, they will be dealt with in coming weeks under a full bailout deal with European partners.

The fact that the measures were not included in the bill aroused some media speculation that Athens was backtracking on reform commitments.

However, Deputy Agriculture Minister Vangelis Apostolou said legislation would be passed in August or September or even later, depending on discussions with the lenders.

Officials from the government and the lenders say neither early retirement reforms or tax increases for farmers were required to be included in the two packages of legislation to be passed by 15 July and 22 July. 

Background

Eurozone leaders reached an agreement on a programme to save Greece from bankruptcy after 17-hour talks on 13 July.

>>Read: Eurozone reaches ‘laborious’ tentative deal on Greece

If approved, this will be the third rescue programme for Greece in five years. It will be managed by the European Stability Mechanism (ESM), the eurozone permanent crisis resolution fund that was initially set up five years ago in an effort to save Athens from bankruptcy.

Here is a look at what Greece must do:

  • Request continued support from the International Monetary Fund after its current IMF program expires in early 2016.
  • Streamline consumer tax and broaden the tax base to increase revenue. Laws on this are due by Wednesday.
  • Make multiple reforms to the pension system to make it financially viable. Initial reforms are due by Wednesday, others by October.
  • Safeguard the independence of the country's statistics agency.
  • Introduce laws by Wednesday that would ensure "quasi-automatic spending cuts" if the government misses its budget surplus targets.
  • Overhaul the civil justice system by 22 July to make it more efficient and reduce costs.
  • Carry out product market reforms that include allowing stores to open on Sundays, broadening sales periods, opening up pharmacy ownership, reforming the bakeries and milk market and opening up closed and protected professions, including ferry transport.
  • Privatize the electricity transmission network operator unless alternative measures with the same effect can be found.
  • Overhaul the labour market. This includes reviewing collective bargaining, industrial action and collective dismissal regulations.
  • Tackle banks' non-performing loans and strengthen bank governance.
  • Significantly increase the privatization program, transferring 50 billion euros worth of Greek assets to an independent fund, based in Greece, to carry out the privatizations.
  • Modernize, strengthen and reduce the costs of Greek administration, with a first proposal to be provided by 20 July.
  • Allow members of the three institutions overseeing Greece’s reforms - the European Central Bank, IMF and European Commission, previously known as the 'troika" - to return to Athens. The government must consult with the institutions on all relevant draft legislation before submitting it to public consultation or to parliament.
  • Reexamine, with a view to amend, legislation passed in the last six months that is deemed to have backtracked on previous bailout commitments.

Further Reading