Greece faces ultimatum: Tough austerity or Grexit

Greece faces ultimatum: Tough austerity or Grexit

Athens, July 13, 2015/ Independent Balkan News Agency

By Zacharias Petrou

At a marathon meeting of eurozone leaders in Brussels on Sunday, Greek Prime Minister Alexis Tsipras faced immense pressure to accept painful austerity for his country in exchange for an EUR 86 billion bailout loan from the European Stability Mechanism.

Greece’s eurozone partners demanded that the Greek parliament votes laws by July 15 on an extensive list of prior actions from labour reforms and pensions to VAT and taxes. The parliament will also need to push privatizations through parliament.

Prime Minister Alexis Tsipras reportedly told his counterparts that he understands trust must be re-built but this doesn’t mean putting every possible reform into an agreement right now. He also asked for the European Central Bank to provide ELA to the banking system starting Monday in exchange for the laws that will pass through parliament.

Greece strongly objected to the fact that it is being asked to implement reforms that were never on the negotiating table and that the Greek parliament has not given the PM the authority to discuss.

A document handed to the eurozone leaders by the eurogroup – which convened on Saturday and Sunday – included, in brackets, (which means that there was disagreement at the meeting on the subject) a recommendation which stated: “In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro are, with possible debt restructuring”.

This idea was proposed in a German finance ministry paper and is telling of the pressure the Greek side came under. It was flatly rejected by the Greek government and countries that supported Greece most in the leaders’ summit such as France, Italy and Cyprus.

Analysts point out that the harsh measures demanded of Greece where the direct result of Alexis Tsipras calling a surprise referendum and abandoning negotiations with creditors, leaving the previous bailout deal to expire.

As of Monday, Greece will have to take a series of steps immediately, such as: Streamlining VAT; broadening the tax base; secure the sustainability of the pension system; adopt a code of civil procedure; safeguarding of legal independence for Greece’s statistics office; legislate automatic spending cuts; and meet the bank recovery and resolution directive.

Considering the latest political developments, a full-blown political crisis is unfolding in Greece and will need to be addressed.

Tsipras could resign and trigger snap polls after reaching a deal with lenders. This would leave Greece in limbo for around 3-4 weeks (with an emergency government being formed). Alternatively, he could sack those MPs who voted against his reform proposals in parliament on last week or abstained, including the two ministers and the parliament speaker. An unstable balance would prevail in the short-term with the government relying on the support of the opposition to survive.

The Greek premier could also seek to enlarge the governing coalition by including one or more of the opposition parties, notably Potami and Pasok. The creation of a wider coalition including New Democracy would reassure the lenders most.

Finally, Tsipras could decide to resign in order for a national unity government to be formed (with the participation of technocrats) that will implement the new agreement. Elections would then be called in the autumn. This is an option if Tsipras cannot persuade the opposition to join him in coalition.

In all the above scenarios, elections are likely to be called either in 3-4 weeks or in the autumn, depending on how developments unfold.