Yves here. One of the biggest threats to the punitive proposed deal with Greece getting done, ironically, is democratic procedures. Even though there are widespread reports that Tsipras will be able to muster the votes via effectively forming a new coalition (something he started working on the morning after the referendum), he also needs to pass the legislation on an expedited basis to meet the creditors’ July 15 deadline for the first four legislative commitments. From the New York Times:
But with many other parties willing to vote for the package, his most pressing problem was more likely the speaker of Parliament, Zoi Konstantopoulou, also a member of Mr. Tsipras’s Syriza party, who objected to Mr. Tsipras’s attempts to pass narrower proposals last Friday.
Some analysts said that Ms. Konstantopoulou, a stickler for rules, could prevent him from using the fast-track procedures that would be necessary to get the job done in time to satisfy European leaders. Portions of the plan must be passed by Wednesday, and more a week from Wednesday.
We pointed out that the left wing of Syriza constrained Tsipras in dealing with the Troika. We suspected his pattern of making commitments to Eurocrats and then partially or fully repudiating them when he got back to Athens was due to being disciplined by internal dissenters. They may still have the power to derail a deal.
And of course, even if this pact is rubber stamped by the Greek parliament, the government faces a legitimacy crisis. How can what amounts to a puppet government have any authority? As Clive Crook points out at Bloomberg:
Why is all that so bad? Ask Europe’s leaders. The first paragraph of the summit declaration says:
The Euro Summit stresses the crucial need to rebuild trust with the Greek authorities as a prerequisite for a possible future agreement on a new ESM program. In this context, the ownership by the Greek authorities is key, and successful implementation should follow policy commitments.
One doesn’t know whether to laugh or cry at the idea that Greece owns this program. Yet the statement is right to say that ownership is crucial. Greek national pride will be bound up with recoiling at these constraints and releasing them. If the Greek parliament, lacking better alternatives, passes the laws demanded of it this week, there’s little reason to suppose that future governments — which will doubtless appear sooner rather than later — will feel bound by them.
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.
Greece’s union of civil servants, Adedly, called for a 24-hour strike on Wednesday, and for a series of demonstrations, the first one tonight at Syntagma Square, just below the Parliament, and another one on Wednesday evening, when Parliament is expected to vote on the new, even tougher, and immensely hated bailout package.
The union for local government employees, Poe-Ota, also called for a 24-hour strike on Wednesday, the AFP reported. Two other demonstrations against austerity and the “euro” are planned for Monday night, one organized via social networks, the other by Antarsya, an anti-euro party that didn’t make it into Parliament.
It would be the first strike against the leftwing Syriza coalition since it came to power six months ago. An ironic plot twist in this tragedy.
Syriza was the big force in the demonstrations against the two prior bailout packages, totaling €240 billion from taxpayers in other countries, conditioned on economic reforms pushed through Parliament by the conservative governments at the time. Now Syriza is looking at having to pass even tougher measures, including an increase in the Value Added Tax and pension reform, in return for only €86 billion in new money from taxpayers in other countries.
Syriza’s junior coalition partner, the Independent Greeks, is already getting cold feet.
“The agreement speaks of €50 billion worth of guarantees concerning public property, of changes to the law including the confiscation of homes… We cannot agree to that,” explained Panos Kammenos, the party’s leader, adding that the party would nevertheless remain in the coalition. With “confiscation of homes” he probably meant foreclosing on homes with defaulted mortgages.
Prime Minister Alexis Tsipras is already struggling with strong dissent within Syriza. But ironically, the pro-euro opposition parties, those maligned creatures that ran the show before, may support him in getting these despised measures passed.
Just how bad is the financial situation? Greece will default on a €450-million loan repayment to the IMF today, two sources told Reuters, on top of the €1.6 billion in debt to the IMF it defaulted on in June. For July alone, Greece faces debt payments of €8 billion, including the IMF payment, none of which it can pay without new money.
And the banks are closed. At first, it was going to be for six days, to prevent them from collapsing on the spot when the ECB decided not to raise the Emergency Liquidity Assistance (ELA). They’re illiquid and insolvent. They’re toast, but complicated toast [read… The Biggest Greek Banks “Have Failed,” and “Resolving” Them Won’t Work: Fitch].
Now they’ve been closed for two weeks, and there is still no reliable indication when they might reopen, under what conditions they might reopen, and how much of their deposits people will get back.
The €25 billion to recapitalize the banks as part of the bailout is supposed to be guaranteed by privatizations. Good luck, given Greece’s history with privatizations. Even the prior conservative governments and technocrats had trouble privatizing these government-owned enterprises that have long provided reliable opportunities for corruption and vote-buying. And now the leftwing Syriza, which swore up and down it would never privatize any of them, is supposed to vote to privatize them and then actually follow through?
But they will have to be privatized to guarantee the recapitalization of the banks. If not….
Even if it works out, the holes in the banks’ balance sheets will be much larger by the time the banks reopen, if they reopen. About two-fifth of their loans were already bad before capital controls were imposed. But here’s the thing: given the capital controls and Greeks’ distrust in their own banking system, only an idiot would still make loan payments.
So the loans are now deteriorating at lightning speed. And that €25 billion won’t be enough. But don’t worry, depositors….
“The recapitalization is so secure that it fully safeguards deposits,” Economy Minister George Stathakis told his compatriots on Monday to soothe their nerves. The ELA would be increased once Parliament approves the reforms, he said, thus pointing his own gun at Parliament.
Alas, the Greeks themselves know better than anyone else to never believe anything that their government publicly says about Greek banks. Hence, the near incessant withdrawals that have now lasted for years and that have finally helped topple the banks.
Turns out, one of the measures to be passed by the Greek parliament no later than July 22 is Europe’s new directive on the resolution of banks. It provides that even senior creditors, including depositors, get haircuts before taxpayers are called in to pick up the tab. The fact that the Greek Parliament has to pass this law in a hurry shows that the dreaded bail-ins of depositors may be part of what’s next.
In theory, the banks’ €32 billion of equity, hybrids, and senior debt will be hit before depositors, according to Barclays. And maybe that’s enough to cover the hole. But as we’ve seen in Cyprus, once a banking system collapses, the holes are always vastly bigger because everything has been ripped out before.
However, deposits below €100,000 will be covered by Greece’s deposit insurance… unless Parliament fails to pass and implement the reform measures that come with the bailout money, the very measures that the people are now demonstrating against.
If the deal falls apart somewhere along the line, Greece has no money to bail out the banks, insure deposits, or do anything else. Given the chaos, uncertainty, and distrust of their government, Greeks are now unlikely to pay any taxes. And so the government then won’t be able to pay salaries and the like, at least not in euros, to their striking civil servants. And there still is no final deal, no money, no debt relief, no nothing. That’s one heck of an accomplishment for six months in power. But outside Greece, the party goes on, and stocks are soaring.
And the one industry in Greece, the largest and most vibrant one that no government has been able to kill? Read… Greece’s Largest Industry Suddenly Takes a Terrible Hit