Greece surrenders fiscal sovereignty in eurozone bailout deal

The deal followed intensive all-night talks and are likely to cause a backlash in Greece

Tsipras summit
Greece's Prime Minister Alexis Tsipras and Greek Finance Minister Euclid Tsakalotos leave a euro zone leaders summit in Brussels, Belgium, July 13, 2015.Eric Vidal/Reuters

Eurozone leaders made Greece surrender much of its sovereignty to outside supervision on Monday in return for agreeing to talks on an €86bn bailout to keep the near-bankrupt country in the single currency.

The terms imposed by international lenders led by Germany in all-night talks at an emergency summit obliged leftist Prime Minister Alexis Tsipras to abandon promises of ending austerity and could fracture his government and cause an outcry in Greece.

"Clearly the Europe of austerity has won," Greece's reform minister George Katrougalos said.

"Either we are going to accept these draconian measures or it is the sudden death of our economy through the continuation of the closure of the banks. So it is an agreement that is practically forced upon us," he told BBC radio.

Greece however aims to reopen its banks on Thursday, bankers said. Facing a wave of withdrawals, the banks closed two weeks ago.

If the summit on Greece's third bailout had failed, Athens would have been staring into an economic abyss with its banks on the brink of collapse and the prospect of having to print a parallel currency and exit the euro.

"The agreement was laborious, but it has been concluded. There is no Grexit," European Commission President Jean-Claude Juncker told a news conference after 17 hours of bargaining.

He dismissed suggestions that Tsipras had been humiliated even though the summit statement insisted repeatedly that Greece must now subject much of its public policy to prior agreement by bailout monitors.

"In this compromise, there are no winners and no losers," Juncker said. "I don't think the Greek people have been humiliated, nor that the other Europeans have lost face. It is a typical European arrangement."

Tsipras himself, elected five months ago to end five years of suffocating austerity, said he had "fought a tough battle" and "averted the plan for financial strangulation".

CONDITIONAL AGREEMENT

Greece won conditional agreement to receive a possible €86bn over three years. As part of the deal, eurozone finance ministers will discuss on Monday how to keep Greece financed during the time it will need to agree a bailout, but none of the options appear easy, officials said.

Athens must meet a tight timetable for enacting unpopular reforms of value added tax, pensions, budget cuts, bankruptcy rules and an EU banking law that could be used to make big depositors take losses.

German Chancellor Angela Merkel said she could recommend "with full confidence" that the Bundestag authorize the opening of loan negotiations once the Greek parliament has approved the entire programme and passed the first laws.

The Bundestag is due to vote on Greece on Friday.

Tsipras returned to Athens on Monday and was expected to meet aides and coalition partners. Facing a Wednesday deadline, he can put all the required measures in one parliamentary bill.

Merkel's allies meanwhile defended the deal, with her chief of staff, Peter Altmaier, saying Europe had won and Germany "was part of the solution -- from the beginning until the end!"

But in Greece, relief was mixed with anger at Germany. "Listen, it is some sort of victory but it is a pyrrhic victory because the measures are very strict," Marianna, 73, told Reuters.

Malta's Prime Minister Joseph Muscat said Greece had been "humiliated" - mostly as a result of its refusal to take an offer made to it two weeks ago.

Asked whether the tough conditions imposed on Greece were not similar to the 1919 Versailles treaty that forced crushing reparations on a defeated Germany after World War One, Merkel said: "I won't take part in historical comparisons, especially when I didn't make them myself."

The deterioration of the Greek economy since Tsipras won office in January, and particularly in the last two weeks, had led to a much higher financing need, she said.

One senior EU official put the cost to Greece of the last two weeks of turmoil at €25 to €30bn. A eurozone diplomat said it might be closer to €50bn.

STATE ASSETS

Tsipras accepted a compromise on German-led demands for the sequestration of Greek state assets worth €50bn - including recapitalized banks - in a trust fund beyond government reach, to be sold off primarily to pay down debt. In a gesture to Greece, some €12.5bn of the proceeds would go to investment in Greece, Merkel said.

The Greek leader had to drop his opposition to a full role for the International Monetary Fund in the next bailout, which Merkel had insisted on to win parliamentary backing in Berlin.

In a sign of how hard it may be for Tsipras to convince his own Syriza party to accept the deal, labour minister Panos Skourletis said the terms were unviable and would lead to new elections this year.

Six sweeping measures including spending cuts, tax hikes and pension reforms must be enacted by Wednesday night and the entire package endorsed by parliament before talks can start, the leaders decided.

In almost the only concession after imposing its tough terms on Tsipras, Germany dropped a proposal to make Greece take a "time-out" from the eurozone that many said resembled a forced ejection if it failed to meet the conditions.

Tsipras was subjected to a 17-hour browbeating by leaders furious that he had spurned their previous bailout offer on more favorable terms in June and held a referendum last week to reject it. Only France and Italy worked to try to soften the terms being imposed on Greece.

Some diplomats questioned whether it was feasible to rush the package through the Greek parliament in three days. Tsipras is set to sack ministers who did not support him and make dissident Syriza lawmakers resign their seats, people close to the government said.

Even if this week's rescue succeeds, EU diplomats question whether Greece will stay the course on a three-year program.

Eurozone finance ministers were tasked with finding sources of immediate bridge funding for Greece to prevent it defaulting on a key payment to the ECB next Monday.

Greece needs €7bn of funding by July 20, when it must make a bond redemption to the ECB, and €12bn by mid-August when another ECB payment falls due.

The ECB on Monday maintained emergency funding for Greek banks to keep them just afloat this week, a banking source said.

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