Greece’s creditors prepared yesterday for the start of bailout talks in Athens, after lawmakers adopted a second package of reform measures before dawn despite a left wing rebellion that may bring early elections.
In a sign of how the goal of coming to grips with the country’s debt is swiftly sliding even further away, Greece’s most influential think tank predicted a sharp drop back into recession. That adds to the headwinds facing leftwing Prime Minister Alexis Tsipras, who must negotiate a bailout worth up to €86 billion with sceptical lenders while struggling to hold his divided Syriza party together.
After another marathon session that ended in the early hours yesterday, the Greek Parliament voted overwhelmingly to approve the second package of reform measures. But 36 Syriza lawmakers rebelled, forcing Tsipras to rely on Opposition votes. While his personal popularity is high, a renewed drop into recession after a modest recovery last year would test his government’s ability to push through the tough mix of tax hikes, spending cuts and economic reforms demanded by the lenders.
Negotiations starting today
A spokeswoman for the European Commission, one of the three creditor institutions alongside the European Central Bank and the International Monetary Fund, welcomed the Greek vote. Formal negotiations are starting today.
Greek officials say they aim to wrap the talks up and have a deal approved in Parliament by August 20, when a €3.4 billion repayment to the ECB falls due.
The new IMF representative for Greece, Delia Velculescu, and officials from the Commission and the ECB are expected in Athens today. Talks will be on two tracks, one dealing with a new memorandum of understanding on actions Greece has to take and a second stream on the loans it hopes to obtain.
But already there have been doubts about whether the severely weakened Greek economy can support the programme after a six year-long slump that has cut national output by a quarter and sent unemployment over 25 per cent. In its quarterly report, the IOBE institute said capital controls imposed last month to save the financial system from a bank run would exact a heavy toll. Reversing a forecast for growth this year of one per cent, it said the economy would contract by as much as 2.0-2.5 per cent after growing 0.7 per cent in 2014, and stay in recession next year.
A senior Greek official said yesterday that Greece would not reach a one per cent primary budget surplus, net of interest rate payments, this year, missing a target agreed with the lenders prior to the imposition of capital controls.
The start of negotiations with the lenders has been overshadowed by the turmoil inside Syriza, which has raised the prospect of a snap election in September or October, once the deal is sealed.