The Greek crisis can revert to being just a big problem—for the time beingby George Magnus / August 11, 2015 / Leave a comment
Read more: how Greece became Europe’s fault line by George Magnus
The third bailout deal for Greece may yet turn out to be like the punishment meted out to Sisyphus, or it may yet collapse and end up with Greece leaving the eurozone. It has come as a shock to many that some sort of bailout phoenix has risen from what seemed like July’s ashes of distrust and despair. A three-year deal, worth up to €86bn, still has details to be ironed out and has to be approved by European finance ministers, and the Greek parliament. It then has to be endorsed by eurozone governments or ratified by some parliaments, including the German Bundestag.
But as things stand, a deal could be in place by 20th August when Greece has to make a payment of just over €3bn to the European Central Bank. This could be in the form of a short-term bridging loan, if necessary, or it could be the first tranche of the bailout, but either way, the Greek crisis can revert to being a big problem—for the time being. Stopping it becoming a full-blown crisis again will depend on solving the predicament of the Greek banks, some form of debt restructuring and the tangled web of Greek politics.
It had seemed as though so-called “prior actions” were going to cause further acrimony between Greece and some of its creditors. These are legislated reforms and initiatives that have to be approved by Greece before bailout funds can be disbursed. Last month, Greece passed some of these prior actions, including a simplification of VAT rates and a widening of the tax base, reductions in some pension payments, assurances about the independence of the national statistics agency, and measures to overhaul the civil justice system. But there were other prior actions that were dropped or hadn’t been formulated.
Until last weekend, many of these, including tax breaks for farmers, receiving subsidised fuel, had proved contentious. A lot of citizens living in rural areas but working in urban areas had re-classified as farmers to claim benefit. Shipping companies and lawmakers had also benefitted disproportionately from advantageous tax treatment. But…