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What next for Greece? More twists and turns

Published:Monday | July 13, 2015 | 1:04 PM

Greece's bailout deal isn't a deal - yet. It only becomes one if Greece meets tough conditions like quickly passing a slew of far-reaching economic reforms, cuts, and privatisations.

After the Greek government dismayed creditors by repealing some economic measures and dragging its feet in negotiations, key lender states led by Germany took a hard line: Reforms first. Money afterward.

Whether the deal will then steer the Greek economy back to health and help it lower its debt remains uncertain.

"Doubts and concerns in our view outweigh optimism and euphoria," wrote Carsten Brzeski, chief economist at ING-DiBa in Frankfurt. "It starts with the fact that there actually is no deal - yet. It's a declaration of intent."

He recommended "that the champagne bottles should still remain in the fridge for a while".

austerity measures

To close the deal with its partners in the euro currency on Monday in Brussels for about €85 billion (US$95.07 billion) in loans and financial support over three years, preserving Greek membership in the euro, and helping their country stave off financial collapse, Greece had to consent to a raft of austerity measures, including sales tax hikes and reforms to pensions and the labour market.

Under the deal struck with creditors, the Greek parliament must approve key reforms by Wednesday. They include VAT tax increases and pension cuts, and safeguarding the full independence of Greece's statistics service, which, at the start of the crisis in 2009, was found to have woefully misstated the country's finances for years.

More reforms have to be passed by July 20, including a new civil code that should streamline legal proceedings and lower business costs.

Will that help Greek banks reopen? That's the intent.

Greece's banks have been closed since the European Central Bank refused two weeks ago to allow them to draw more emergency credit. Once the legislation passes and Greece gets closer to financial rescue, the ECB may decide to permit more credit. It could do that anytime it can say a bailout deal is in the offing but may wait until Thursday's meeting of its governing council - the day after the first Greek vote.

An increase in credit could enable the Greek banks to reopen and perhaps increase their withdrawal limit of €60 per day.

But analysts say some kind of limit on cash withdrawals and transfers will likely stay in place for months.


The closed banks have made normal commerce impossible and worsened the recession. Getting them open again is a top priority if the Greece economy is to recover.

Germany's parliament must also approve the start of negotiations, which officials said could happen Friday. Austria and France will also hold votes on the preliminary agreement.

Once Greece passes the reform laws, the institutions monitoring its finances - the European Union's executive Commission, the International Monetary Fund, and the European Central Bank - will get a mandate to start talks. The Greeks will have to make more reforms such as opening up closed professions, easing worker protections in labour law, and privatising the national electricity grid.

They will also have to transfer government-owned businesses and assets into an independent privatisation fund that will sell them off.

And the eurozone says that's just to get the talks started. At the end of the process, national parliaments have to sign off in Germany, Estonia, The Netherlands, Finland, Austria, and Slovakia. Only then can Greece tap the money from the bailout fund, the European Stability Mechanism.

The creditors acknowledge that time is short and that a full bailout deal worth between €82 billion and €86 billion over three years must be struck quickly.

Greece needs €7 billion by July 20 to cover its bills and debt repayments and an additional €5 billion by mid-August. It's already in arrears on a €1.5 billion payment to another important creditor, the IMF, and needs to clear that before it can get more IMF loan money.

Eurozone countries were discussing whether to help Greece meet these obligations with a short-term bridge loan.