The eurozone and Greece have finally agreed terms of a third bailout. The deal can only happen if Greek Prime Minister Alexis Tsipras now manages to get tough new austerity measures approved in parliament. Many of those measures are even stricter and far-reaching than those rejected by Greeks in a referendum less than two weeks ago.
So, what does the new deal entail? Well, to begin with, a lot of money.
Greece’s creditors figure the country needs between €82 billion and €86 billion in rescue funds. Immediate financing needs amount to €7 billion by July 20 and an additional €5 billion by mid-August, in large part to help Greece clear arrears to the International Monetary Fund and pay back other loans falling due.
That might sound a lot, but it’s only around a third of what Greece has already received in the first two bailout programs–it already owes an estimated €230 billion to the International Monetary Fund, the European Central Bank and other European governments. Although much of the focus has been on German resistance to stumping up ever more cash to the Greeks, smaller eurozone countries that were given much smaller lifelines on strict terms during the crisis were also unhappy at the prospect of forking endless amounts of money to the Greeks.
As for Greek banks, they’re still in big trouble. Greece’s creditors figure they need a buffer of between €10 billion and €25 billion for recapitalization and resolution costs, of which €10 billion would be made available immediately.
That’s a broad range of estimates for how much money the banking sector needs. Maybe because the question of who takes a hit has yet to be resolved. By July 22, the Greek government will have to adopt the European Union’s Bank Recovery and Resolution Directive (BRRD). The BRRD outlines how creditors take the hit in a bank insolvency. In other words, it suggests Greek depositors could be subject to bail-ins, i.e. losses on deposits above certain guaranteed minimums, as happened in Cyprus in 2013, during its banking crisis.
So what does Greece have to do to get hold of the money? Value-added tax will be streamlined and go up. The pension system will undergo major reforms. The Greek statistics agency is to be made independent and reliable. A system of quasi-automatic spending cuts are to be implemented if Greece deviates from ambitious surplus targets. These have to be adopted by Wednesday.
Then, besides the adoption of the BRRD, the Greek civil justice system will have to be overhauled by July 22.
And then there’s a raft of other market reforms, including recommendations on Sunday trade, sales periods, pharmacy ownership, milk and bakeries and the opening of macro-critical closed professions like ferry transportation. The electric grid system will have to be privatized or subject to competition. The labor market is to be made more flexible. And the financial sector is to be strengthened.
On top of all that, Greece has to set up a €50 billion privatization fund half of which will pay for bank recapitalization, a quarter of which will be for paying down debt and the final quarter for investments. As a small concession to the Greeks, its creditors will allow the fund to be run from Athens rather than Luxembourg, which was originally proposed.
[Related: How Will the Greek Privatization Fund Work?]
Some of the above might sound sounds familiar for a very good reason.
The Syriza government will have to reinstate policies on pension reforms agreed under previous rescue plans. Basically, the Syriza government has had to back down on almost all fronts relative to what it promised when seeking election in January. And the new bailout plan includes the IMF, a situaton Mr. Tsipras fought against in the talks overnight, but a battle he ultimately lost.