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 The terms imposed by international lenders led by Germany in
all-night talks at an emergency summit obliged leftist Prime
Minister Alexis Tsipras to abandon promises of ending austerity and
could fracture his government and cause an outcry in Greece.
"Clearly the Europe of austerity has won," Greece's Reform Minister
George Katrougalos said.
"Either we are going to accept these draconian measures or it is the
sudden death of our economy through the continuation of the closure
of the banks. So it is an agreement that is practically forced upon
us," he told BBC radio.
If the summit had failed, Greece would have been staring into an
economic abyss with its shuttered banks on the brink of collapse and
the prospect of having to print a parallel currency and in time,
exit the European monetary union.
"The agreement was laborious, but it has been concluded. There is no
Grexit," European Commission President Jean-Claude Juncker told a
news conference after 17 hours of bargaining.
He dismissed suggestions that Tsipras had been humiliated even
though the final euro summit statement insisted repeatedly that
Greece must henceforth subject much of its public policy to prior
agreement by bailout monitors.
"In this compromise, there are no winners and no losers," Juncker
said. "I don't think the Greek people have been humiliated, nor that
the other Europeans have lost face. It is a typical European
arrangement."
Tsipras himself, elected five months ago to end five years of
suffocating austerity, said he and his team had "fought a tough
battle" and had to make difficult decisions. He said he had secured
an improved promise of debt restructuring and "averted the plan for
financial strangulation".
Greece won conditional agreement to receive a possible 86 billion
euros ($95 billion) over three years, along with an assurance that
euro zone finance ministers would start within hours discussing ways
to bridge a funding gap until a bailout - subject to parliamentary
approvals - is finally ready.
That will only happen if he can meet a tight timetable for enacting
unpopular reforms of value added tax, pensions, quasi-automatic
budget cuts if Greece misses fiscal targets, new bankruptcy rules
and an EU banking law that could be used to make big depositors take
losses.
German Chancellor Angela Merkel said she could recommend "with full
confidence" that the Bundestag authorize the opening of loan
negotiations with Athens once the Greek parliament has approved the
entire program and passed the first laws.
VERSAILLES IN BRUSSELS?
Asked whether the tough conditions imposed on a desperate Greece
were not similar to the 1919 Versailles treaty that forced crushing
reparations on a defeated Germany after World War One, she said: "I
won't take part in historical comparisons, especially when I didn't
make them myself."
The deterioration of the Greek economy since Tsipras won office in
January, and particularly in the last two weeks, had led to a much
higher financing need, she said.
One senior EU official calculated the cost to the Greek state of the
last two weeks of political and economic turmoil at 25 to 30 billion
euros. A euro zone diplomat said the full damage might be closer to
50 billion euros.
Tsipras accepted a compromise on German-led demands for the
sequestration of Greek state assets worth 50 billion euros -
including recapitalized banks - in a trust fund beyond government
reach, to be sold off primarily to pay down debt. In a gesture to
Greece, some 12.5 billion euros of the proceeds would go to
investment in Greece, Merkel said.
The Greek leader had to drop his opposition to a full role for the
International Monetary Fund in the next bailout, which Merkel had
insisted on to win parliamentary backing in Berlin.
In a sign of how hard it may be for Tsipras to convince his own
Syriza party to accept the deal, Labour Minister Panos Skourletis
said the terms were unviable and would lead to new elections this
year.
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Six sweeping measures including spending cuts, tax hikes and pension
reforms must be enacted by Wednesday night and the entire package
endorsed by parliament before talks can start, the leaders decided.
In almost the only concession after imposing its tough terms on
Tsipras, Germany dropped a proposal to make Greece take a "time-out"
from the euro zone that many said resembled a forced ejection if it
failed to meet the conditions.
Tsipras was subjected to a 17-hour browbeating by leaders furious
that he had spurned their previous bailout offer on more favorable
terms in June and held a referendum last week to reject it. Only
France and Italy worked to try to soften the terms being imposed on
Greece.
HARD BARGAIN
Some diplomats questioned whether it was feasible to rush the
package through the Greek parliament in just three days. Tsipras is
set to sack ministers who did not support his negotiating position
and make dissident lawmakers in his Syriza party resign their seats,
people close to the government said.
Even if this week's immediate rescue succeeds, many EU diplomats
question whether an unstable Greece will stay the course on a
three-year program with a return to intrusive quarterly monitoring
on the ground in Athens.
Merkel, whose country is the biggest contributor to euro zone
bailouts, said from the start that she would drive a hard bargain
against a backdrop of mounting opposition at home to more aid for
Greece.
The final sticking point was Germany's insistence on an independent
external trust fund to control state assets for privatization.
Berlin initially wanted to use a structure in Luxembourg managed by
its own national development bank, KfW, but eventually relented.
One diplomat said that was tantamount to turning Greece into a
"German protectorate". But Merkel declared the matter a "red line"
for Germany.
Euro zone finance ministers were tasked with finding sources of
immediate bridge funding for Greece if it passed the laws, to
prevent it defaulting on a key payment to the ECB next Monday.
Options included releasing European Central Bank profits on Greek
bonds, tapping an emergency fund run by the European Commission, or
bilateral loans from friendly countries such as France. Two French
sources denied any bridging loan was planned.
Finance ministers said Greece needed 7 billion euros of funding by
July 20, when it must make a crucial bond redemption to the ECB, and
a total of 12 billion euros by mid-August when another ECB payment
falls due.
The ECB was expected to maintain emergency funding for Greek banks
to keep them just afloat this week but no large increase was likely
and the banks would need a major recapitalization before they could
reopen, central bank sources said.
(Reporting by Alastair Macdonald, Andreas Rinke, Tom Koerkemeier,
Philip Blenkinsop, Julia Fioretti, Alexander Saeedy, Robert-Jan
Bartunek and Julien Ponthis in Brussels, George Georgiopoulos and
Lefteris Karagiannopoulos in Athens; Writing by Paul Taylor; editing
by Anna Willard and Giles Elgood)
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