Greece’s finance minister says European leaders have, in principle, accepted a new proposal from Athens that could pave the way for another installment of a multibillion-dollar bailout. The move could stave off a Greek default on its debt obligations and avert an exit from the eurozone — at least for now.
“They have accepted the new proposal of the Greek government is a proper framework on which to work on,” Finance Minister Giorgios Stathakis told the BBC. “And with some adjustments that will be the issue of discussion for the next day or so we’ll end up with the proper technical solution as well.”
Stathakis said the proposals called for new taxation on businesses and the wealthy, “and we will save pensions and wages,” which he called “red lines” his government wouldn’t cross.
European Council President Donald Tusk called the plan the “first real proposals in many weeks.” And Dutch Finance Minister Jeroen Dijsselbloem, who chairs the council of 19 countries that use the euro, said that while more time was needed to review the proposals, the plan is “a basis to really restart the talks again and really get a result.”
Still, eurozone finance ministers meeting in Brussels said the proposals came too late for a breakthrough Monday on the crisis. Jean-Claude Juncker, the head of the European Commission, said he hoped to have an agreement “by the end of the week,” and that timing would be soon enough to avert a financial calamity.
Here are the details of the proposal, courtesy of The Wall Street Journal: “The new proposals … foresee new pension savings and revenues worth 0.4% of gross domestic product for this year and 1% starting next year, three officials familiar with the plan said.” The Associated Press adds that Greece will make tougher “rules on early retirement and shift some categories of goods to a higher sales tax bracket, including hotels and certain foods. Emergency bailout taxes that had been imposed will remain.”
And here are more details from The Financial Times‘ Peter Spiegel:
And from Joost de Vries, a reporter for Volkskrant, a Dutch newspaper.
Why This Matters
Greece is just days away from a June 30 deadline to repay a $1.8 billion loan to the International Monetary Fund. But the country, which has not recovered from the 2008 global economic recession, needs an $8.17 billion bailout, the latest in several infusions, from international lenders to repay that and other outstanding loans.
The lenders — the European Commission, the IMF and the European Central Bank — say they won’t release the funds unless Greece agrees to overhaul its economy. The concessions the lenders are seeking center on pensions reform, something the left-wing Greek government says it cannot accept because the country’s pensioners have borne the brunt of the Greek downturn.
Without the money, Greece will default on its debt and will likely exit the eurozone, a move that would have even worse effect on the country’s economy, and hurt the rest of the EU, too. Its banks, which were offered a recent lifeline by the ECB, will collapse, and as the Financial Times notes, “the only way to restart them would be by creating a new central bank with a new currency.”
Eurozone ministers are expected to meet again Thursday to find a way out of the crisis. Separately, Greek Prime Minister Alexis Tsipras met with German Chancellor Angela Merkel and other European leaders to discuss a possible breakthrough. Merkel said there would be no decision on a deal Monday night.
The Financial Times lays out possible scenarios if a deal isn’t reached. Here’s more:
“Without an agreement on a list of economic reforms, officials have said there is no hope of extending the programme for a third time, meaning Greece would be without an EU safety net for the first time in five years.
“Unless the bailout funds are disbursed, Mr Tsipras has made clear he will not make the IMF payment. Although technically this is not a default, since IMF rules consider a non-payment ‘arrears’, Greece would join a motley crew of developing countries — Somalia, Cuba and Zimbabwe — that have current or former “overdue obligations” to the IMF.
“Although credit rating agencies have said that non-payment to the IMF is not formally a default, the ECB would have to decide if it meant Greece was essentially bankrupt. If so, the collateral used by Greek banks to obtain their emergency loans — mostly Greek government bonds — would be worthless. That would mean the ECB having to cut off emergency funding, probably forcing a Grexit.”
The newspaper adds that in another scenario, Greece doesn’t make its payment, but the ECB continues to provide emergency loans to Greek banks.
“An economy hamstrung by capital controls, a government without any cash and a banking system struggling on life support, Greece would essentially begin a drawn-out process of economic suffocation,” the FT says.