Thursday 8 December 2016

Greece crisis: New bail-out plan sought but economists predict Grexit

* Tsipras acknowledges Greek responsibility for its plight
* Athens submits request for 3-year ESM loan programme
* Greece moving ever closer to bankruptcy
* Tsipras promises to deliver detailed reform package

By Barbara Lewis and Alastair Macdonald

Published 08/07/2015 | 18:52

Greek Prime Minister Alexis Tsipras attends a debate on Greece at the European Parliament in Strasbourg, France. Photo: REUTERS/Vincent Kessler
Greek Prime Minister Alexis Tsipras attends a debate on Greece at the European Parliament in Strasbourg, France. Photo: REUTERS/Vincent Kessler

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

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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.

Greek Prime Minister Alexis Tsipras arrives to address the European Parliament in Strasbourg, France, July 8, 2015. Euro zone members have given Greece until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of Europe's currency bloc and into economic ruin. REUTERS/Vincent Kessler
Greek Prime Minister Alexis Tsipras arrives to address the European Parliament in Strasbourg, France, July 8, 2015. Euro zone members have given Greece until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of Europe's currency bloc and into economic ruin. REUTERS/Vincent Kessler
Greek Finance Minister Euclid Tsakalotos waits for the start of the meeting of eurozone finance ministers in Brussels. Photo: AP
Members of the European Parliament hold placards which reads "No - Freedom to Greece" ahead of the speech of Greek Prime Minister Alexis Tsipras at the European Parliament in Strasbourg, France, July 8, 2015. Euro zone members have given Greece until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of Europe's currency bloc and into economic ruin. REUTERS/Vincent Kessler
A pensioner waits outside a branch of the National Bank to receive part of his pension in Athens yesterday
A pensioner exits a National Bank branch after receiving part of his pension in Athens, Greece July 8, 2015. Euro zone members have given Greece until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of Europe's currency bloc and into economic ruin. REUTERS/Alkis Konstantinidis
People stand in a queue to enter a bank for limited services, as the front page of newspaper depicting the Greek Prime Minister Alexis Tsipras reading ''Time runs out for a solution before catastrophe'', in Athens. Photo: AP
'Short term, Grexit will be traumatic, wiping out the assets of middle-class Greeks'
(L-R) Dutch Prime Minister Mark Rutte, German Chancellor Angela Merkel, Greek Prime Minister Alexis Tsipras (standing C), Austrian Chancellor Werner Faymann (rear, in red tie), and European Commission President Jean Claude Juncker take part in a euro zone EU leaders emergency summit on the situation in Greece, in Brussels, Belgium, July 7, 2015. Tsipras launched a desperate bid to win fresh aid from sceptical creditors at an emergency euro zone summit on Tuesday, before his country's banks run out of money. REUTERS/Yves Herman
Greek prime minister Alexis Tsipras has addressed the European Parliament (AP)
Greek Prime Minister Alexis Tsipras (L) talks with European Central Bank President Mario Draghi during a euro zone EU leaders emergency summit on the situation in Greece in Brussels, Belgium, July 7, 2015. Greece faces a last chance to stay in the euro zone on Tuesday when Tsipras puts proposals to an emergency euro zone summit after Greek voters resoundingly rejected the austerity terms of a defunct bailout. REUTERS/Yves Herman
People queue at an ATM to withdraw cash in Athens on July 7, 2015. European Commission head Jean-Claude Juncker said that he was against an exit by Greece from the euro, even though Greeks massively rejected bailout terms in a referendum this weekend
Newly-appointed Finance Minister Euclid Tsakalotos (R) and outgoing Yannis Varoufakis embrace at the Finance Ministry after a handover ceremony in Athens
Donations of cash are counted following a collection for the Greek Solidarity Campaign, during a rally in support of Greece at the TUC's Congress House, in London, Britain, July 6, 2015. REUTERS/Peter Nicholls
(L-R) German Chancellor Angela Merkel, Greek Prime Minister Alexis Tsipras, Austrian Chancellor Werner Faymann, European Central Bank President Mario Draghi and European Commission President Jean Claude Juncker take part in a euro zone EU leaders emergency summit on the situation in Greece in Brussels, Belgium, July 7, 2015. Greece faces a last chance to stay in the euro zone on Tuesday when Tsipras puts proposals to an emergency euro zone summit after Greek voters resoundingly rejected the austerity terms of a defunct bailout. REUTERS/Yves Herman
A tourist takes a picture outside the Greek Central Bank
Taoiseach Enda Kenny speaks with British Prime Minister David Cameron during a round table meeting at the EU summit in Brussels
A pensioner waits outside a branch of the National Bank to receive part of his pension in Athens, Greece, July 7, 2015. Greece faces a last chance to stay in the euro zone on Tuesday when Prime Minister Alexis Tsipras puts proposals to an emergency euro zone summit after Greek voters resoundingly rejected the austerity terms of a defunct bailout. REUTERS/Yannis Behrakis
As EU chiefs continue wrangling with a desperate Greek government, the commission said that our bailed-out banks should be allowed to profiteer on the back of mortgage holders
'The leather-clad Greek finance minister failed to endear himself to his eurozone counterparts with his penchant for incendiary comments and brash negotiating tactics'

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.

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 today.

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 today.

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.

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.

Read more: Greece crisis: Greeks dismiss report on preparing IOUs to pay state wages, pensions

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.

Read more: Greece Crisis: Tsipras issues plea for resultion which will offer 'light at the end of tunnel'

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.

"ADMISSION OF IMPOTENCE"

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 percent from 45 percent 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.

Reuters

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