Europe will fund Greece
Europe moved to reopen funding to Greece’s stricken economy yesterday after the Parliament in Athens approved a new bailout programme in a fractious vote that left the government without a majority.
The European Central Bank increased emergency funding for Greek lenders, although capital controls will have to remain to avoid a bank run when they reopen on Monday.
EU finance ministers also approved €7 billion in bridging loans to keep Greece afloat, allowing it to make a bond payment to the ECB next Monday and clear its arrears with the International Monetary Fund.
The loans will be finalised today provided Germany’s Parliament approves a Berlin government request to open talks on a three-year bailout programme – Greece’s third in the past five years – worth up to €86 billion.
The twin lifelines were a reward for Greek Prime Minister Alexis Tsipras after he won the backing of Parliament in the early hours of yesterday for the tough reform measures demanded by creditors led by Germany.
But Tsipras was left weakened by a revolt in his left-wing Syriza party and is expected to reshuffle his Cabinet to replace four ministers and deputy ministers who rebelled.
Interior Minister Nikos Voutsis said a snap election could be held in September or October, “depending on developments”. German Finance Minister Wolfgang Schaeuble, one of Greece’s sternest critics, questioned whether Athens would ever get a third bailout, even after the parliamentary vote. He suggested its financing needs were spiralling and a debt “haircut” or write-off – outside the eurozone – might be a better solution.
“We will now see in the negotiations whether there is even a way to get a new programme, taking into account financing needs, which have risen incredibly,” Schaeuble told Deutschlandfunk radio.
The move by the Greek Parliament was enough to persuade the ECB to raise Emergency Liquidity Assistance (ELA) for the banks by €900 million for a week to nearly €90 billion.
“Things have changed now,” ECB president Mario Draghi told a news conference in Frankfurt. “We had a series of news with the approval of the bridge financing package, with the votes, various votes in various parliaments, which have now restored the conditions for a raise in ELA.”
Draghi said it was difficult to make decisions on Greece given the constraints of an ELA programme which was never meant to provide unlimited and unconditional support for a banking system that faces a major overhaul.
A senior banker said Greek banks would reopen on Monday – three weeks after they were shut when Athens imposed capital controls. Cash withdrawals, limited to €60 a day, are likely to remain rationed.
Finnish and Lithuanian lawmakers gave their approval to begin negotiations, a day before the German Bundestag is due to decide on the issue.
Schaeuble said he would vote to open talks but underlined the risks still surrounding the negotiations that will be conducted over the next few weeks, saying a temporary Greek “timeout” from the euro may still be a better option.
After a warning from the IMF this week that Greece’s massive public debt could not be managed without a significant writedown, Schaeuble said that a debt haircut was incompatible with euro membership and would mean Greece would have to leave the euro, at least temporarily. “But this would perhaps be the better way for Greece,” he said.