Greece Seeks $59.2 Billion Bailout in Effort to Keep Euro
Will it work?
The government of Greek Prime Minister Alexis Tsipras sought a three-year bailout loan of at least 53.5 billion euros ($59.2 billion), in a last-ditch effort to keep the country in the euro.
In exchange, it offered a package of reforms and spending cuts, including pension savings and tax increases, similar to the one presented by creditors last month. The proposal was submitted to European institutions late Thursday and will be presented to the Greek Parliament Friday. It is set to be discussed at a summit of European Union leaders Sunday to determine whether Greece gets a new bailout, or be forced to leave the single currency.
Greece offered measures that almost mirrored a proposal from creditors on June 26, which was rejected by voters in a July 5 referendum. In return, it asked for its long-term debt to be made more manageable to allow it to rebound from a crisis that has erased a quarter of its economy. It is unclear if the proposal is enough to clinch a deal with creditors amid signs of economic deterioration since banks were closed and capital controls imposed 12 days ago.
“The Greeks appear to have made significant concessions, apparently accepting much of the most recent creditor proposal,” Chris Scicluna, head of economic research at Daiwa Capital Markets in London, wrote in a note. “It remains to be seen whether creditors will want even more austerity.”
U.S. and Japanese index futures climbed with the euro after Greece’s proposal. Standard & Poor’s 500 Index futures gained 0.9 percent to 2,059.25 by 7:44 a.m. in Tokyo, while contracts on the Nikkei 225 Stock Average jumped 1 percent in Chicago. The euro rose 0.2 percent to $1.1063.
The Greek government said it would use the three-year loan from the European Stability Mechanism to cover debt repayments between 2015 and 2018, mostly to the International Monetary Fund and the European Central Bank. It will then be left with debt owed only to European Union institutions.
Greece’s proposal includes creditors’ longstanding demands for sales tax increases and cuts in public spending on pensions. Greece also proposes the restructuring of its debt and a package of growth measures of 35 billion euros.
Pressure has been mounting on Greece’s creditors to make the country’s debt more manageable.
“A realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” European Union President Donald Tusk told reporters in Luxembourg Thursday. “Only then will we have a win-win situation.”
The U.S. wants to see debt sustainability in Greece, John Kirby, a State Department spokesman, told reporters in Washington Thursday. German Chancellor Angela Merkel and her government have come under pressure to back away from resistance to debt relief for Greece, a major obstacle to a deal.
Whether Greece can expect a writedown of its outstanding debts, which exceed 170 percent of gross domestic product, remains a key point of contention.
“We think debt relief of some form will be on the table,” but structured in a fashion capable of winning German backing, Royal Bank of Scotland analyst Michael Michaelides said in a research report.
Even if Tsipras and creditors can reach a basic agreement, his greatest challenge may still lie at home.
Tsipras will meet on Friday morning with lawmakers of the ruling Coalition of the Radical Left, or Syriza, to discuss the proposal to creditors. The party was elected in January after it promised to fight the successive spending cuts and tax hikes that had been required for previous bailouts.
“Greece is obviously working to secure an immediate deal, but it must be a deal that opens a window out of the current crisis,” Energy Minister Panagiotis Lafazanis, a hard-line Syriza member, said at a conference in Athens Thursday. “We don’t want a third memorandum with tough austerity measures.”