Today it became known that the Greeks had managed to come to an agreement with their creditors. However, it’s a bit soon to start celebrating since work still needs to be done. On Monday the Eurozone leaders announced that Greece will receive another three-year aid program if the Greek prime minister Alexis Tsipras can agree to put some economic measures in place in the coming few days.
By Wednesday the Greek parliament should sign into force a law which will overhaul the pension system and increase VAT, whilst only a week ago the Greeks voted a resounding no to such reforms. Greece now needs to fulfill what the EU is asking for: facilitate the liquidation of bankrupt banks, including byway of splitting the costs between investors and creditors. A more detailed program for Greek aid, which we will see after Athens has put reforms into place and lessened its expenses, will make provisions for unprecedented measures of external control and supervision within the Eurozone. This means the loss of fiscal sovereignty which will be payment in kind for the Greek’s membership within the euro.
A more disputed measure that Greece’s creditors are intent on is the creation of a 50 billion euro fund of state assets to be privatized or liquidized within the next few years. This fund will be under European supervision. A large part of the money from this fund will go to repayment of debts and the recapitalization of the country’s banks, whereas 12.5 billion euros could be used for reinvestment.
These new economic measures may well split the Greek ruling party in two. SYRIZA and its coalition government, including parties such as Independent Greeks, may call for early elections. It’s not yet decided whether the banks will open over the next two weeks and it’s also not yet decided how Greece will pay 4.2 billion euros to the ECB on 20th June.
The Eurozone finance ministers are meanwhile discussing a mechanism to provide Greece with a much needed short term financing plan. According to an announcement made on Sunday, Greece is in need of finance which has grown to 86 from 74 billion euros. The recapitalization of Greek banks will, as expected, cost from 10 to 35 billion euros. The IMF will take part in the new Greek aid program under the condition that Athens pays up its debt to the fund.
By conceding, Eurozone powers that be have agreed to discuss means to facilitate debt management for Greece later this year. These measures may involve an extension of deadlines for Greek debt payments; however the question of debt being written off is being left off the list according to Mrs. Merkel. The agreement that has been reached also provides for the modernization and depoliticization of the Greek governing system. Athens and international institutes will have their first round of negotiations about this on 20th July.
For the meanwhile all this looks like a case of they “made me an offer I couldn’t refuse.” However, it’s worth waiting for the signing of the agreement which still hasn’t been agreed by the Greek parliament. As for me, I’m not excluding another political crisis in the country.
The euro/dollar has fallen to 1.1066. Further movement on the pair will be dictated by the details of what’s going on around Greece.