Tsipras bewildered with Berlin’s humiliating demands; ECB expects political sign to refinance the Greek banks

At the sidelines of Sunday’s Eurosummit the Greek Prime Minister Alexis Tsipras met with the German Chancellor Angela Merkel, the EU Commission President Jean-Claude Juncker and the French President Francois Hollande. (EC Audiovisual Services, Date: 07/07/2015).

The Greek indecisiveness and procrastination and the deep division of the euro area countries, with Germany upholding an intransigent position have led to the humiliation of Athens, during the Saturday and Sunday late night meetings of the Eurogroup (the council of the 19 ministers of Eurozone) and the Eurosummit (the 19 heads of Eurozone state and government council). Late on Sunday afternoon the Eurogroup transmitted its recommendation to the 19 leaders in a document containing a direct threat for a Grexit.

Earlier on Saturday during the first session of the Eurogroup Wolfgang Schäuble, the German minister of Finance, infamous in southern Europe, went as far as to tell his colleague Euclid Tsakalotos, the newly appointed Greek minister of Finance, that his country doesn’t really belong to Europe. Tsakalotos was also told that the Athens government is unreliable and irresponsible and has first to deliver what it promises and then get a new loan of around €83 billion. The Eurogroup decided that to mend this Greece has to pass in the Parliament during the next three days a number of key reforms concerning the pension system, the VAT rates, the privatization effort etc.

Eurosummit after the Eurogroup

After the Eurogroup it was the turn of the 19 leaders of the Eurosummit to put their Greek colleague Alexis Tsipras to the asphyxiation test. During the afternoon and later on yesterday night the Greek Prime Minister was summarily threatened with a disorderly Grexit. In view of that he was forced to accept an additional long list of humiliating ‘prior actions’ leading directly to more austerity. He only rejected to transfer Greek assets of a value of €50 billion to a company in Luxembourg as a security that Greece will comply with the terms of a possible new (third) Memorandum of Understanding between the country and its creditors (2010, 2012, 2015)

Last Friday or rather early on Saturday morning though, the Greek government had already passed a far reaching austerity and reforms package in Parliament. The package was then instantly submitted to the country’s creditors as a token of the government’s willingness to apply more unpopular and painful measures in order for the country to stay in Eurozone and continue receiving financial support. In doing so, Prime Minister Alexis Tsipras went as far as to actually dent the unity of his own party, the left wing SYRIZA which he had led to a momentous victory in the 25 January election.

Country above SYRIZA

A number of 17 SYRIZA deputies including two government ministers and the Parliament Speaker denied their backing to Tsipras’ new package of measures. Another 15 SYRIZA deputies signed a document informing the PM that they are not going to vote for the individual draft laws while applying the new program. SYRIZA has 149 deputies and has formed a government coalition with a junior partner, the ANEL right wing nationalistic party with 14 deputies. The latter deputies firmly back Tsipras’ options.

At the end, the proposal was passed with a resound majority of 251 votes in a house of 300 with the solid backing of all the opposition parties at the exception of the Communist Party and the fascist Golden Down group. The major opposition party, New Democracy, the socialist PASOK and the center-left Potami (River) party soundly backed the new sacrifices in order for Greece to stay put in the Eurozone.

Backing from the opposition

On top of that, those three parties have promised Tsipras more backing during the coming weeks when the individual measures will be brought to Parliament by the competent ministers. This backing will be needed this week while Alexis Tsipras returns from Brussels with a difficult agreement in his bag. A number of key measures have to be promulgated in the next three days.

In short, Tsipras has consciously decimated his own party in order to keep Greece in Eurozone with the votes of the opposition. This is exactly what the European Sting anticipated on Thursday 9 July. The relevant passage was: “As things stand now in Tsipras’ left-wing governing party, the SYRIZA, its extreme left deputies are expected to vote down this eventual third austerity program. However, the new plan can be approved in the legislative with a massive vote from the opposition parties”.

Yet Greece stays in Eurozone

Yet, Berlin and some other capitals still refuse to recognize the willingness of Athens to deliver the needed changes in a number of key sectors like the pension system, taxation, the product markets, structural issues and the public administration. On the other side of the table, France and Italy plus Spain and some other Eurozone countries stand firm in their support for Greece to stay in the euro area under conditions of course. Apparently, Paris has emerged as a strong pole standing firm against Germany’s austerity and fiscal orthodoxy policies.

The French President Francois Hollande has ‘adopted’ in a way the young Prime Minister Alexis Tsipras’ proposal for a groundbreaking reshuffle of the Greek economy. If Hollande manages to convince the German Chancellor Angela Merkel that Greece has submitted a realistic and painstaking economic program and at the same time make sure that Tsipras delivers, then France will again gain its position as the ‘political academy’ of the EU.

A weekend to be remembered

During this weekend past, the 19 ministers of Finance in the Eurogroup and the heads of state and government of the euro area in the Summit of the Eurogroup have been wrangling between them around the above mentioned lines. The EU Council had also announced a meeting of the 28 EU leaders for Sunday but this one was canceled. Eurozone is going to resolve its internal problems within the family. Even from Saturday night it became apparent that there was no need to change the Treaties so the 28 leaders had nothing to do. This was translated into the exclusion of a Grexit.

As expected, both the Eurogroup and the Eurosummit didn’t conclude on an all-embracing agreement with Greece on the base of Tsipras’ proposal. The country’s partners raised the issue of confidence about the implementation of a possible overall agreement and longed for a short term solution. Greece has a burning liquidity and debt servicing problem, with the Greek banks closed and the banking system at the brink of total collapse.

As a result, an omnibus accord between Greece and its creditors has been divided into a short term bridging arrangement – which is to take care of the burning immediate problems – and the long term Memorandum of Understanding, the third between the country and the troika of creditors the EU, the ECB and the IMF.

Hopefully the final communiqué of the Eurosummit is going to transmit a sign to the ECB that an overall agreement is in view and thus the central bank can restart financing the Greek banks.