Europe decides: New $80 billion rescue for Greece?

Jul 11, 2015

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In:Greece

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Finance officials from the 19 countries that use the euro have begun discussing Greece’s request for about $80 billion in new loans it needs to avoid bankruptcy and keep the currency.

 

European leaders gave Greek Prime Minister Alexis Tsipras an ultimatum earlier this week: Convince us you’re serious about putting Greek finances in order, or you’re out of the eurozone.

Officials arriving for a weekend of crisis talks in Brussels said the Greek proposals were a positive step, but it was still far from certain whether formal negotiations on a new rescue package could begin.

Greece has not yet said how much money it wants in its third bailout since 2010.

Austria’s finance minister Hans Joerg Schelling told reporters the loans would total about 72 billion euros ($80 billion), including a contribution from the International Monetary Fund, over three years.

Greece has already received about 233 billion euros from Europe and the IMF in the past five years.

Related: Inside Greece’s health care crisis

The package of reforms Greece is proposing includes spending cuts, tax hikes, and plans to phase out tax discounts on some islands, among many other things. Greece is also proposing changes to public pensions, such as raising the retirement age, and steps to improve tax collection.

They’re very similar to ideas put forward by the country’s creditors in late June before Tsipras walked out of talks, triggering the collapse of the last bailout and forcing the closure of Greece’s banks.

But on their own they don’t go far enough. Germany’s finance minister, Wolfgang Schaeuble, said Saturday’s crunch talks would be “extraordinarily difficult.”

 

Here are several obstacles to a deal:

  1. Greece will need to accept even tougher reforms and fiscal targets to take account of the rapid deterioration in its finances and economic outlook caused by the closure of its banks and the introduction of capital controls.
  2. Belief in the Greek government’s commitment to reforms, and its ability to implement them, has been shattered by the series of U-turns seen in the past couple of weeks.
  3. Opinion in some other countries that use the euro, including Germany, is running very high against another rescue for Greece. Taxpayers don’t want to put more public money at risk. A new bailout would need to be ratified by parliament in Germany, and a handful of other countries.
  4. Greece wants creditors to restructure its debt. Europe could give it even more time to pay back loans, and cut already very low rates of interest, but that may not be enough. Some eurozone countries insist they can’t go further and cancel Greek debt outright.
  5. That in turn could kill a deal. Some eurozone countries say they’ll only back a third bailout if the IMF takes part. The IMF has made clear that it will only participate if the Europeans agree to restructure Greece’s debt.

So the pressure is on. If talks fail this weekend, all 28 heads of government in the European Union are on standby to fly to Brussels for an emergency summit late Sunday.

That meeting would discuss how to cope with the unpredictable fallout of a Greek exit from the euro