Climbdown by Syriza as it agrees austerity terms rejected in vote
Greece's left-wing Syriza government has agreed to austerity terms rejected by the Greek people in a landslide referendum less than a week ago, culminating in one of the most bizarre political episodes of modern times.
Prime Minister Alexis Tsipras sought to put the best face on a humbling climbdown, recoiling from a traumatic fight that would have led to Greece's ejection from the euro as early as Monday. He implicitly recognised that the pain of capital controls and economic collapse was too much to bear.
"We are confronted with crucial decisions," he said. "We got a mandate to bring a better deal than the ultimatum that the eurogroup gave us, but we weren't given a mandate to take Greece out of the eurozone."
Hopes for a breakthrough set off near euphoria across Europe's stock and bond markets yesterday, though Greece still has to face an emergency meeting of eurozone ministers today, and probably a full summit of the EU's 28 leaders tomorrow.
A top Greek banker close to the talks said there was a "90pc chance" of clinching a deal, thanks to intervention behind the scenes by a team from the French treasury, and to aggressive diplomacy by the Obama administration over recent days.
"We are preparing to open up branches for normal banking services next week. Capital controls will last for a while. The situation is very fluid but we don't think we will need a major recapitalisation of the banks," said the source.
Any deal almost certainly means the European Central Bank (ECB) will lift its freeze on emergency liquidity for the Greek financial system, possibly on Monday, entirely changing the picture.
Syriza accuses the ECB of deploying "liquidity asphyxiation" to bring a rebel democracy to its knees. The ECB freeze has been a controversial political and legal move - given the bank's treaty obligations to uphold financial stability - and is likely to be dissected by historians for years to come.
A final deal to end the long-running saga is still not certain. The outcome depends on how much debt relief the creditor powers are willing to offer, and whether it is a contractual obligation written in stone or merely a vague promise for the future.
Yet the broad outlines are taking shape after Syriza agreed to three more years of fiscal tightening, with deep pension cuts and tax rises, and a raft of "neo-liberal" reforms that breach almost all the party's original red lines.
Syriza insiders did not hide their disgust, though Mr Tsipras managed to quell a full-scale mutiny. "It is a total capitulation," said one Syriza veteran.
"We never had a 'Plan B' for what to do if the ECB cuts off liquidity and the creditors simply destroyed our country, which is what they are doing. We thought that when the time comes, Europe would blink, but that is not what happened."
Yanis Varoufakis, the former finance minister, said he would back his successor and close friend, Euclid Tsakalotos, but only for the next two days. "I have serious doubts as to whether the creditors will really sign on the dotted line and offer substantive debt relief. My fear is that they will make all the right noises, but then fail to follow through, as in 2012," he said.
Mr Tsakalotos told the Greek parliament that Syriza aims to secure a swap of $27bn of Greek bonds held by the European Central Bank for longer-dated bonds at lower interest rates.
The US, France, Italy, the International Monetary Fund, and officials of the EU Council and Commission have called openly for debt relief.
French President François Hollande called the Greek proposals "serious and credible".
Even German Chancellor Angela Merkel has opened the door to an extension of debt maturities. The difficulty is that this alone is no longer enough.
Greece has called for €53.5bn in fresh funds over the next three years. While much of this is recycled to cover maturing debts, the package requires a vote by the German Bundestag. Germany alone can veto any deal since it has over 15pc of the voting weight in the bail-out fund.
Mr Tsipras is facing a ghastly reality. He promised the Greek people that he would achieve a miracle: an end to austerity and the Troika Memorandum, without poisoning Greece's ties to Europe and without giving up the euro.
This was always a dangerous political gambit. His only possible redemption at this point is to bring back the prize of debt relief. If even that fails, he may yet have to accept Grexit as the least bad of terrible choices. (© Daily Telegraph, London)