Greece to stay in Eurozone, but at a cost (Updated)
…via budget cuts AND tax hikes.
After 22 hours of fierce negotiating, the Eurozone summit has come up with a deal that will keep Greece in the Eurozone in exchange for both budget cuts and tax hikes.
For those who oppose austerity and “euro”centric economics, the deal is a huge blow. Europe has agreed to advance Greece 10 billion Euros to help the flailing country pay down it’s 3.5 billion euro debt to the IMF. Greece will also receive around 77 billion dollars in aid over three years in part to help strengthen it’s banking system. European officials will also review Greece’s total debt, but will not (!) reduce the amount to be paid back. In return, Greek officials have agreed to a line of policy changes that include cuts to pensions and an increase in the sales tax, with the goal of increasing the budget surplus. They must also make steps to privatize much of the economy, which will (hopefully) increase competition in local markets, and contribute 50 billion euros worth of privatized assets into a fund that will be used to help Greece pay off its debt.
In short, it’s an activist’s worst nightmare.
More via the Wall Street Journal:
“The deal is hard,” [Greek Prime Minister Alexis] Tsipras said after the summit, warning that the measures required by creditors will send the country’s economy further into recession.
European stocks rallied Monday on the news. The Stoxx Europe 600 rose 1.7% early in the afternoon, building on Friday’s hefty gains.
…
“Trust needs to be restored,” German Chancellor Angela Merkel said at a news conference.“The agreement was laborious. It took time but it was done,” said Jean-Claude Juncker, the president of the European Commission.
“There won’t be a Grexit,” Mr. Juncker added, referring to a Greek exit from the eurozone.
Tsipras isn’t happy—this deal could be a political death knell for him. His party was elected specifically for their anti-austerity stance, he served up a politically-convenient referendum encouraging his people to buck the Eurozone’s demands, and what has happened? That referendum passed overwhelmingly, and now we’re looking at an almost-complete capitulation to the people Tsipras has claimed are out to destroy Greece’s economy.
The deal serves as a disappointing reminder of Greece’s weakness for those who opposed austerity measures and believed that a “no” vote on Tsipra’s anti-euro shotgun referendum would strengthen Greece’s bargaining position with the rest of the Eurozone:
Of course, those rallies and protests all happened during the fever of the referendum; today, reactions to the new deal have been mixed. Those who opposed a deal (especially a deal that sanctioned further involvement of the IMF) are obviously disappointed, but Greeks who are committed to membership in the Eurozone were sure to voice their praise:
#BREAKING Greek civil servants' union calls 24-hour strike for Wednesday
— Agence France-Presse (@AFP) July 13, 2015
As a Greek citizen, I will actively support all efforts of the @PrimeministerGR to make true reforms. #bettertogether #Greekment
— Katerina Polyzou (@ptwkate) July 13, 2015
this is not #greekment ,this is #GRAUCTION
— Stavroula Koukou (@stavroulakouk) July 13, 2015
This isn’t over, of course. Greece still has to follow through by drafting and passing legislation aimed at cutting costs and raising revenue. We’ll keep you updated on how compliant Tsipras’ party is in getting these things done.
Update
The deal has already fielded its first torpedo:
The Greek government’s junior coalition partner says it cannot back the agreement announced Monday between Greece and its European creditors — describing the proposed deal as a “coup staged by Germany and other countries.”
Defense Minister Panos Kammenos, leader of the right-wing Independent Greeks party, said he had no plans to leave the government but added he would not join a national unity government.
“This deal introduced many new issues … we cannot agree with it,” Kammenos said after meeting with Prime Minister Alexis Tsipras.
The announcement is a blow to Tsipras’ six-month-old government, which is struggling to maintain its majority in parliament.
Political theatre’s original form—the Greek tragedy.
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Comments
Does anyone really believe Greece will actually reform once the ink is dry and the money starts flowing?
Silly question. Of course not. The kicker here is a question nobody is asking: “Will Greece ever manage to wrangle a budget where spending < revenue?"
If not, all of the hubbub is just window dressing for the ultimate *larger* bankruptcy. tick, tick, tick…
Do they get audited? That should come first.
Huh.
Sounds sort like “austerity” to me…
Heh!
That money won’t get to the pockets of the people who really need it. The Greek politicians are already sitting down to find creative ways to steal it. The same goes for the hacks that run the European Union.
Tsipras is in over his head. That is why he has reversed himself so much.
One illusion, maybe has been shattered. Others have not been.
They’ve been dealing with the Greek government like it was a dictatorship. It’s not, and they can’t guarantee that any future promises will be kept – if they even can be.
The Europeans still are not willing to write off the debt.
They stil think maybe that these budget moves will not shrink the economy.
Everybody seems to think the banks will re-open. In reality, except maybe for purposes of backing a check someone is writing, nobody will put any money into a Greek bank until there is deposit insurance by the European Central Bank, and there are no capital controls within Greece or between Greece and other countries.
Whenever they get an opportunity, people will pull money out, AND THAT’S ALL PEOPLE WILL DO. The threat to change to the drachma or to freeze banks accounts is not gone.
Sale of assets with the money used to pay off the debt, might actually happen, or at least be set in motion.
But some of the assets,like Greek banks, are now not really worth anything.
Eveyone is using outdated information.
Actually we have no idea what the Greek banks are worth until their books are examined. They could be sitting on all sorts of stuff—mortgages, bonds, maybe even US bonds—with clear market value.
Normally when a bank faces ruin because of a shortage of cash, it could do what any other business does—turn some of those assets into cash and avert the problem. But if one thing was made clear by the various “anti-austerity” votes of the past six months, Greeks at all levels—government, business, and individual—have not been looking for any real solution to their economic woes. All of them have absolute faith that they will be rescued by a deus ex machina … as always. So why liquidate any assets? Just hang on for a bit until the flow of free money from Europe resumes.
It’s all pretend. That $77 billion will take care of humanitarian concerns, is just pretending. The banks are insolvent. The worse the Greek economy gets, the more insolvent they will be.
Anybody want to pool our money and buy the island of Corfu?
Trouble is, there are about a hundred thousand Greeks on Corfu. And, if the recent news is any indication, they’re mostly deadbeats.
The Greek people continually voted for cronyism and corruption. Now the bill is coming due and they’re going to have to pay it one way or another. Stupidity OUGHT to come with a stiff price.
No. All that happened is that the can was kicked. Again. The hole is too deep; collapse is inevitable. It’s just a strategy to protect the connected as much as possible. As usual, the little people will suffer the most.
The Greeks aren’t the only ones who will have to pay the price for rampant cronyism.
That’s right. They just don’t want to write down the lona,s
As for the budget they should have put Greece on an all cash budget – not accrual – and there would be fewer arguments too.
They can raise the tax rate to 110% and it wouldn’t help. Greece has an underground economy almost as large as the official, taxable one. And about a third [estimated] of taxes due are never paid.
The way they dodge taxes, you would think they were Democrat congressmen.
Just as with the now defunct Soviet Union, Greece is flat broke. They have been that way for years. When the Greeks start selling off state assets, like the Soviet Union did in the 1990s; then we will very sure of that. To help with that, the best idea is that Greece should be put on a trust fund, the kind that a certain amount be doled out and when that is gone before the allotted time, tough luck.