Greece Accepts ‘Fiscal Waterboarding’ as Bailout Deal Passes Parliament

Greek lawmakers finally accepted European austerity demands. Now, there are growing fault lines between the country's creditors, the International Monetary Fund, and the European Union.


After a lengthy, often contentious debate, Greek lawmakers early Thursday morning passed European-imposed austerity the country’s people and its prime minister, Alexis Tsipras, had previously rejected. For now, the result removes the prospect of the Grexit — Greece leaving the eurozone — but there is a growing rift among the creditors funding a massive three-year bailout that could total nearly $100 billion.

The International Monetary Fund, the European Commission, and the European Central Bank are fronting Greece between 82 billion and 86 billion euros, or $89 billion and $93.5 billion, it needs to stay afloat. The IMF now says the terms of the debt deal are unacceptable. It’s threatening to withdraw from the deal if Europe refuses to forgive some of Athens’s debt of 300 billion euro, or $326 billion. Germany and other fiscal hawks, including the Netherlands and Finland, say this isn’t going to happen.

The IMF is crucial to the bailout deal. As one of Greece’s three creditors, Europe needs it to help pay for the massive bailout necessary to save the Greek economy from collapse. The lifeline is also necessary for Greece to pay back to the IMF the $1.7 billion it is in default on, as well as the 6.7 billion euros, or $7.3 billion, that Greece owes the European Central Bank over the next two months.

The fund is making the new demand because it now predicts Greece’s debt to GDP ratio will reach more than 200 percent; it had previously said it would only reach 177 percent. That’s because the Greek economy has shrunk sharply since the crisis began. From 2008 to 2013, Greek GDP contracted 25 percent.

To win the vote, Tsipras had to beat back a revolt from his own far-left Syriza party. During the debate on the measure, he admitted it would be difficult for him to remain as prime minister without support from his fellow Syriza lawmakers, who largely abandoned him and voted against their leader. It remains to be seen whether he will be able to keep power, now that the coalition that appointed him as prime minister has fractured.

“Not only is [Tsipras] notorious for committing U-turns, but the scale of tonight’s backlash is likely to prove much more significant than we had initially anticipated,” Mujtaba Rahman, the head of the Eurasia Group’s European practice, said in a research note circulated Wednesday. Rahman predicted the prime minister would lose his office.

A power vacuum at the top of Greece’s government would further muddy five years of contentious negotiations between Greek officials and their European counterparts that have now been poisoned. Officials from across Europe say Greece can no longer be trusted and have built safeguards into the bailout package to make sure Athens does what it promised early Thursday morning, Greek time.

Tsipras’s onetime finance minister, Yanis Varoufakis, has also abandoned the Greek leader. In a line-by-line takedown of the deal with Europe released Wednesday, Varoufakis compared the terms of the deal to “fiscal waterboarding.”

Even lawmakers who approved the measure expressed reservations about the tax increases, pension reforms, and spending cuts it contained. This includes Tsipras, who admitted he thought the proposal was bad for Greece. But he said it was necessary to save his country from financial ruin.

“I signed a text I do not believe in,” Tsipras said on Greek television Tuesday.

This kind of double-talk has come to define the Greek crisis in recent weeks. After defaulting on a June 30 $1.7 billion payment to the IMF, he called a referendum for the Greek people to decide whether to accept European austerity and urged them to vote no. On July 5, 61 percent of Hellenic voters did as he asked.

Europe was unmoved by the tally and continued to demand harsh austerity. Early Monday morning, Tsipras capitulated and agreed to measures that were harsher than those originally proposed.

In another odd twist, Tsipras was absent for much of the marathon debate. He reappeared around 12:50 a.m., Athens time, fifty minutes after Europe’s deadline to pass the bailout package.

“We have left a heritage of dignity and democracy to Europe,” Tsipras said, arguing accepting the deal allows Greece to save its dignity. “This fight will bear fruit.”

As the debate proceeded Wednesday, anti-austerity protesters clashed with police on the streets of Athens. Molotov cocktails were thrown at law enforcement authorities. Tear gas was fired in response. A number of vehicles were also set on fire in the most severe violence in three years.

This violence, and the uncertainty over how Greek lawmakers would vote, caused markets to trade lower Wednesday.

Greek banks, which are quickly running out of money, remained closed Wednesday. It’s unclear whether they would open tomorrow or stay closed until next week. Withdrawals are still limited to 60 euros, or $67, each day; pensioners can take out a maximum of 120 euros, or $134, daily.

They’re shuttered because they’re on the verge of collapse. On Wednesday, European officials proposed a 7 billion euro, or $7.7 billion, bridge loan to keep the country afloat until the end of July. That money would be made available from the European Stability Mechanism, the fund created to keep faltering European nations afloat. It’s dependent on Greece approving austerity.

British Prime Minister David Cameron said British pounds would not be used for the interim funding fix; his finance minister, George Osborne, later softened this position by suggesting pounds could be used if the European Union provides a guarantee that London would be paid back if Greece defaults on the loan. Czech Finance Minister Andrej Babis said his country’s currency, the koruna, would not be a part of the gap funding.

On Wednesday, the French Parliament overwhelming backed the bailout accord. Germany’s Bundestag, its lower house of parliament, is set to vote on whether to reopen negotiations with Greece Friday. It’s likely to do so, but some members of Chancellor Angela Merkel’s conservative governing coalition said they plan to break with their leader to oppose it. Many German citizens are also opposed to giving Greece a third financial lifeline.

“The package is neither credible nor viable,” Klaus-Peter Willsch, a member of Merkel’s Christian Democratic Union, told the German newspaper Der Tagesspiegel.

Photo credit: Aris Messinis/Getty Images

David Francis was a senior reporter for Foreign Policy, where he covered international finance. @davidcfrancis

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