Syriza folded on its position of not taking bailout funds. From the Wall Street Journal:
Greece’s new left-wing government backed down from its plans to throw out the bailout program the country signed with its international creditors, striking a tenuous deal with the rest of the eurozone to extend the program by four months.
But now the two sides will launch what may be even tougher negotiations over how to keep the Greek government financed in the years to come, while at the same time reviving the depressed Greek economy. Those discussions could break down at any time, pushing the ministers back into high-stakes talks on what to do about Greece.
After weeks of fraught negotiations, the eurozone on Friday evening agreed to a request by the new left-wing government of Prime Minister Alexis Tsipras to extend the country’s bailout program. The extension lasts for four months until the end of June, just weeks before Athens must make several large debt repayments to its creditors….
Officials have much more work to do. Under the agreement struck on Friday, the Greek government has until close of business on Monday to propose a list of fiscal reforms and overhauls, based on those laid out in the current bailout program. Greek officials have said they want to replace many existing measures with new ones.
If the Greek proposal is deemed insufficient by the eurozone creditors, the finance ministers will likely convene again to decide their next move, an EU official said.
From the Financial Times:
The decision to request an extension of the current programme is a significant U-turn for Alexis Tsipras, the Greece prime minister, who had promised in his election campaign to kill the existing bailout.
In addition, it includes no reduction of Greece’s sovereign debt levels, another campaign promise. Discussions on debt restructuring are likely as part of follow-on talks ahead of another bailout programme, which must now be agreed before June…
Critically, the agreement commits Athens to the “successful completion” of the current bailout review, although it allows for Greece to negotiate its economic reform agenda. The reforms must be approved by bailout monitors, and the final agreement on the measures is to be completed by April.
The deal also unexpectedly requires the eurozone’s bailout fund to take back €10.9bn in funds currently sitting in Greece’s bank rescue facility, an unusual move that reflects the lack of trust between Athens and its eurozone lenders. The money would still be available for bank recapitalisation, but it would be disbursed by eurozone authorities rather than Athens, as was previously the case.
Reuters has this ominous quote from German finance minister Wolfgang Schuable:
The Greeks certainly will have a difficult time to explain the deal to their voters. As long as the programme isn’t successfully completed, there will be no payout.
And this remark from Yanis Varoufakis in the press conference, per the Guardian:
Our big anxiety now is whether we can enforce these reforms. That is the big national bet,” rel=”nofollow”>Our big anxiety now is whether we can enforce these reforms. That is the big national bet
The Open Europe blog (hat tip Stephen M) has a good summary of the deal terms. Key items:
What points has Greece capitulated on?
Completion of the current review – Greece has basically agreed to conclude the current bailout. Any funding is conditional on such a process…
Remaining bank recapitalisation funds – Greece wanted this money to be held by the Hellenic Financial Stabilisation Fund (HFSF) over the extension period, and possibly be open for use outside the banking sector. However, this has been denied and the bonds will return to the EFSF, although they will remain available for any bank recapitalisation needs.
Role of the IMF – The Eurogroup statement says, “We also agreed that the IMF would continue to play its role”…
No unilateral action – According to the statement,+
The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.
In light of this, a large number of promises that SYRIZA made in its election campaign will now be hard to fulfil. In the press conference given by Eurogroup Chairman Jeroen Dijsselbloem and EU Economics Commissioner Pierre Moscovici, it was suggested that this pledge also applied to the measures which were announced by Greek Prime Minister Alexis Tsipras in his speech to the Greek parliament earlier this week – when he announced plans to roll back some labour market reforms passed by the previous Greek government.
Four months rather than six months – Greece requested a six-month extension, but the Eurogroup only agreed to four months. This is a crucial point: it means the extension expires at the end of June. As the graph below shows, Greece faces two crucial bond repayments to the ECB in July and August which total €6.7bn. This is a very tough hard deadline. There is limited time for the longer term negotiations which will take place – provided that a final agreement on the extension is reached. It is very likely we will be back in a similar situation at the end of June….
As we said yesterday, Greece has folded this hand but the game of poker continues. Greece is now short stack and living hand to hand (day to day). It continues to be in a very tough position and how the evaporation of the vision which SYRIZA sold at the election is a crucial and potentially explosive unknown.
The press release from the Eurogroup:
Update 6:30 PM: As reader Jim Haygood indicates in comments, the Greek government hit the limits of the ELA today as a result of more deposit flight. I am told, and will hopefully add some detail later, that the Greek government said it would need to impose capital controls if there was no agreement reached.
One issue is that given how overwhelmed the new government has been with negotiating the crisis and now long it takes to assume effective control of operations, they may not have been able to impose capital controls. Varoufakis’ “There is no Plan B” may have in part been a reflection of the inability at this juncture to take even basic steps to deal with a forced Grexit.