After almost 17 hours of talks in Brussels, Europe’s longest-ever summit, Greece and the rest of the eurozone have finally reached an agreement that could lead to a third bailout and keep the country in the single currency bloc.
Greek Prime Minister Alexis Tsipras conceded to a further swathe of austerity measures and economic reforms. Here is a summary of where he has had to compromise.
GREEK ASSETS TRANSFER
Up to 50 billion euros (US$54.49 billion) worth of Greek assets is to be transferred to a new fund, which is to contribute to the recapitalization of the country’s banks. The fund is to be based in Athens, not Luxembourg as Germany had originally demanded.
The location of the fund was a key sticking point in the marathon overnight talks. Transferring the assets out of Greece would have meant “liquidity asphyxiation,” Tsipras said.
As the statement puts it: “Valuable Greek assets will be transferred to an independent fund that will monetize the assets through privatizations and other means.”
The “valuable assets” are likely to include things such as planes, airports, infrastructure and banks, analysts say.
Some of the fund is to be used to recapitalize banks and decrease debt, but analysts are skeptical about how much money there will really be to work with.
“Given the experience of the last few years’ privatization program, these targets appear overtly optimistic, serving as a signaling mechanism of Greek government commitment to privatization rather than a meaningful source of financing for bank recapitalization, growth and debt reduction,” Deutsche Bank strategist George Saravelos said.
PENSIONS
Greece was told that it needed to pass measures to “improve long-term sustainability of the pension system” by Wednesday. (Editor’s note: It did).
The country’s pensions system, and its perceived generosity relative to other eurozone states, has been a key sticking point in the past five months of negotiations with creditors.
The so-called “troika” of lenders believes that Athens can save 0.25 percent to 0.5 percent of GDP this year and 1 percent of GDP next year by reforming pensions.
Greece had wanted to draw out reform of early retirement rules, starting in October and running until 2025, when everyone would retire at 67. The EU wants the process to start immediately, by imposing huge costs on those who want to retire early to discourage them from doing so.
The lenders also say Athens must bring forward the reform program so it completes in 2022.
VAT AND OTHER TAXES
Another source of contention in the months of failed negotiations that preceded Monday’s tentative deal, VAT was also placed back on the block for immediate reform.
The latest agreement demanded measures, again by Wednesday, for “the streamlining of the value added tax (VAT) system and the broadening of the tax base to increase revenue” (Editor’s note: The measures were included in the bailout program passed by the Greek parliament early yesterday).
One of the key objections from Greece’s creditors to its VAT system is a 30 percent discount for the Greek islands. Athens proposed a compromise on Friday last week under which the exemptions for the big tourist islands — where the revenue opportunities are greatest — would end first, with the more remote islands following later.
The onus on Greece to “increase revenue” is likely to mean more items would be covered by the top VAT rate of 23 percent, including restaurant bills, something that had until recently been a red line for Tsipras.
STATISTICS OFFICE
Another demand for legislation by Wednesday was on “the safeguarding of the full legal independence of ELSTAT,” the Greek statistics office.
LIBERALIZING THE ECONOMY
The new deal also calls for “more ambitious product market reforms” that would include liberalizing the economy with measures ranging from bringing in Sunday trading hours to opening up closed professions.
Greece’s labor markets must also be liberalized, the other eurozone leaders say. Notably, they are demanding Athens “undertake rigorous reviews and modernization” of collective bargaining and industrial action.
Pharmacy ownership, the designation of bakeries and the marketing of milk are also up for reform, all as recommended in a “toolkit” from the Paris-based Organisation for Economic Co-operation and Development.
BALANCING THE BOOKS
Greece has been told it must legislate to introduce “quasi-automatic spending cuts” if it deviates from primary surplus targets. In other words, if it cannot cut enough to balance the books, it should cut some more.
In the past, the troika has demanded that Greece commit to a budget surplus of 1 percent this year, rising to 3.5 percent by 2018.
DEBT RESTRUCTURING
Greece has been promised discussions on restructuring its debts. A statement from Sunday night also ruled out any “haircuts,” leaving the 240 billion euros Greece owes to Brussels, the European Central Bank and the IMF on the books.
German Chancellor Angela Merkel said the Eurogroup was ready to consider extending the maturity on Greek loans. She said that a delay in loan repayments and a lower interest rate act in the same way as a write-off, which is why many analysts point out that the Greek debt mountain is worth the equivalent of 90 percent of GDP in real terms and not the 180 percent commonly quoted.
Merkel said that for this reason there was no need for a Plan B.
RADICAL REFORMS
Tsipras pledged to implement radical reforms to ensure the Greek oligarchy finally makes a fair contribution. The agreement thrashed out overnight would allow Greece to stand on its feet again, he said.
Implementation of the reforms would be tough, he said, but “we fought hard abroad, we must now fight at home against vested interests.”
“The measures are recessionary, but we hope that putting ‘Grexit’ [Greek exit from the euro] to bed means inward investment can begin to flow, negating them,” he added.
BRIDGING FINANCE
Talks were to begin immediately on bridging finance to avert the collapse of Greece’s banking system and help cover its debt repayments this summer. Greece must repay more than 7 billion euors to the European Central Bank (ECB) this month and next, before any bailout cash can be handed over.
IMF SUPPORT
The statement from the euro summit stipulates that Greece will request continued IMF support from March next year. This is another loss for Tsipras, who had reportedly resisted further IMF involvement in Greece’s rescue.
ENERGY MARKET
Greece has been told to get on with privatizing its energy transmission network operator.
FINANCIAL SECTOR
Greece has been told to strengthen its financial sector, including taking “decisive action on non-performing loans” and eliminating political interference.
SHRINKING THE STATEM
Athens has been told to depoliticize the Greek administration and to continue cutting the costs of public administration.
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