Cyprus Mail

Greece seeks new EU loan deal in race to avert collapse (updated)

Greek Prime Minister Alexis Tsipras addresses the European Parliament in Strasbourg

By Barbara Lewis and Alastair Macdonald

A race to save Greece from bankruptcy and keep it in the euro gathered pace on Wednesday when Athens formally applied for a three-year loan and European authorities launched an accelerated review of the request.

Greek Prime Minister Alexis Tsipras called in a speech to the European Parliament for a fair deal, acknowledging Greece’s historic responsibility for its plight, after EU leaders gave him five days to come up with convincing reforms.

The government submitted a request to the European Stability Mechanism bailout fund to lend an unspecified amount “to meet Greece’s debt obligations and to ensure stability of the financial system”. It promised to begin implementing tax and pension measures sought by creditors as early as Monday.

With its banks closed, cash withdrawals rationed and the economy in freefall, Greece has never been closer to a state bankruptcy that would probably force it to leave the euro and print an alternative currency.

Greek banks will remain closed for the rest of the week and a 60-euro per day ATM withdrawal limit will remain in force, Greek state television reported on Wednesday.

The government ordered the banks to close their doors on Monday, June 29, after the collapse of negotiations on an international aid deal. The decree, already extended once, was due to expire on Wednesday.

Yet the leftist premier seemed almost nonchalant, albeit with a note of humility, when he appeared before EU lawmakers in Strasbourg to cheers and scattered boos.

Speaking hours after euro zone leaders, at another emergency summit in Brussels, set Greece a deadline of the end of the week to come up with far-reaching reform proposals, Tsipras said Greeks had no choice but to demand a way out of “this impasse”.

“We are determined not to have a clash with Europe but to tackle head-on the establishment in our own country and to change the mindset which will take us and the euro zone down,” he said to applause from the left. But he gave scant details of his reform plans, frustrating many lawmakers.

The head of the Eurogroup of finance ministers of the 19-nation currency area, Jeroen Dijsselbloem, asked the European Commission and the European Central Bank to evaluate the loan request, assess Greek debt sustainability and study whether Greece poses a risk to the financial stability of the euro zone.

The aim is for Eurogroup ministers meeting on Saturday to be in a position to recommend a loan, and some emergency bridging finance, which a full summit of the 28 EU leaders would approve on Sunday if they are satisfied with Greek reform commitments.

That is a big ‘if’, both due to Athens’ chequered record and because many of the liberalisation measures required run counter to the leftist ideology of Tsipras’ Syriza party.

The prime minister promised to deliver detailed reform plans on Thursday and avoided the angry rhetoric that has alienated many European partners. He did however criticise attempts to “terrorise” Greeks into voting for “never-ending austerity”.

The European Central Bank kept Greece’s banks on a tight leash, holding a freeze on emergency funding that means they could soon run out of cash.
European Council President Donald Tusk reiterated that the final deadline for Greece to submit convincing reform plans and start implementing them was this week.

“Our inability to find an agreement may lead to the bankruptcy of Greece and the insolvency of its banking system,” Tusk told EU lawmakers. “And for sure it will be most painful for the Greek people.
“I have no doubt that this will affect Europe, also in the geopolitical sense. If someone has any illusion that it will not, they are naive,” he said.
In the turbulent chamber, some lawmakers held up ‘Oxi’ (No) signs to back Greek voters’ rejection of more austerity, while far-right speakers praised the radical leftist government for standing up to what several called the European “oligarchy”.

Euro zone officials want Greece to rush a first wave of measures through parliament before Sunday to prove its serious intent. German Chancellor Angela Merkel has said she would ask parliament in Berlin to authorise the opening of loan negotiations if the Greek measures are deemed satisfactory.

Merkel made clear earlier that that she was “not exaggeratedly optimistic” that a deal could be found to save Greece by Sunday.

Euro zone sources said one key question was whether the package will be more ambitious than the spending cuts, tax increases and modest reforms that Greek voters rejected on Sunday in a referendum on a previous bailout plan.

“The numbers have to add up, and the numbers have become vastly more unfavourable since the banks were shut and the economy seized up in the last 10 days,” one euro zone finance official said.

France, which has tried to mediate between Athens and Berlin, nailed its colours to the mast on Wednesday, warning of the perils of a ‘Grexit’.
Socialist Prime Minister Manuel Valls told parliament in Paris: “Keeping Greece in the euro and therefore in the heart of Europe and the EU is something of the utmost geostrategic and geopolitical importance.” To let Greece go would be “an admission of impotence”, he added.

U.S. Treasury Secretary Jack Lew stepped up pressure from Washington for Greece and its partners to reach a deal that keeps Athens in the euro for the sake of economic and geopolitical stability in Europe.

Despite the last-minute efforts to conjure up a deal, a Reuters poll of economists found the probability of Greece leaving the euro zone had risen to 55 per cent from 45 per cent last week, the first time more than half had taken that view.

Tsipras admitted that after winning power on a promise to end austerity, his government had “spent more time negotiating than governing” but he disappointed those who had hoped to hear concrete immediate measures to transform the shattered economy.

Having secured a referendum victory and the unprecedented support of the five main parties in parliament, Tsipras also made clear he wanted to act fast to pre-empt any possible revolt against the painful concessions he will need to make.

He was strongly critical of Greece’s failings as a society, citing a history of clientelism, corruption, tax evasion that had “run riot”, inequality and “the nexus of political and economic power”.

Centrist EU lawmaker Sylvie Goulard told him: “In the words of a well known advertising slogan, ‘Just do it!'”
While Athens has made strides since 2010 in turning around its public finances to post a budget surplus before debt service, it has lagged on implementing structural reforms.

In particular, it has fallen far short of targets on privatising state assets and struggled to improve tax collection and reform labour laws and a costly pension system.

The IMF in the past has demanded that Greece quickly implement a law allowing for collective dismissals since no such layoffs have been approved for 30 years.
Creditors have also pushed to end anti-competitive restrictions in product markets that have kept prices high, such as preventing the sale of bread in convenience stores.

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