The panic is lessening inside Greece but how long can this détente last?by George Magnus / July 23, 2015 / Leave a comment
Last night, the Greek Parliament voted to approve a second emergency bill, paving the way for discussions about the country’s third bailout of up to €86bn to proceed. Like the first bill, which provided for austerity measures worth about 2.5 per cent of GDP, approval yesterday depended on the support of opposition members of parliament. The number of Syriza’s 149 lawmakers voting against the government, or abstaining, dropped slightly from 39 to 36, still leaving Alexis Tsipras’ political position in the balance.
So what happens next? According to Pierre Moscovici, the European Commissioner for Economic and Monetary Affairs, bailout talks could be completed by the second half of August. Another ECB loan falls due for repayment on 20th August, but if talks have not been completed then, a new bridging loan will probably be forthcoming. In view of the depletion of the government’s majority in the Hellenic Parliament, and the split inside Syriza, Alexis Tsipras has indicated that there could be new elections on the 13th or 20th September, once the talks are completed. Events are now unfolding in three spheres: the technicalities of the bailout agreement, Greek politics, and the eurozone itself.
Slowly, Greece is backing away from a state of emergency. The banks re-opened last Monday after a three-week shutdown, offering limited services. Capital controls remain in force, and are unlikely to be diluted until the banks are recapitalised. This is expected to happen as a part of the bailout, once the banks have been subjected to an asset quality review and stress test. The process will have been facilitated by approval last night of the Bank Recovery and Resolution Directive. New civil code reforms, designed to improve the efficiency of the justice system, were also approved. With bridging finance extended by Greece’s eurozone partners, IMF loan arrears have been paid off, as has an important €4.2bn principal and interest bill to the ECB, which in turn, raised liquidity assistance by about €900m to Greek banks (Emergency Liquidity Assistance) for the second consecutive week.