Greece’s Bailout Deal with Europe Is Starting to Show Cracks

The European Union’s agreement to provide Greece with the 86 billion euros, or $95 billion, bailout that Athens needs to stay solvent is beginning to show signs of strain, with creditors threatening to delay an October payment as Greek Prime Minister Alexis Tsipras struggles to implement promised austerity reforms.

On Monday, Valdis Dombrovskis, a senior European Commission official charged with assessing how well Greece is abiding by its August commitments, said that the EU and Greece still disagree on how to toughen foreclosure laws. Right now, an estimated 320,000 Greeks are in arrears, or behind in their home loan payments. This represents about 40 percent of all Greek home loans.

Tsipras’ government wants cover for borrowers with homes worth up to 300,000 euros, or $331,185, and who earn up to 35,000 euros, or $38,638 per year. That would account for about 75 percent of the loans now in arrears. According to the leftist Greek government, the EU’s counterproposal — protection for homes worth up to just 120,000 euros, or $132,474 — would leave 80 percent of the Greek borrowers who are behind on home payments at risk of losing their homes to foreclosure.

The growing foreclosure rift is the latest to strain the deal between Greece and its creditors: the European Commission, the European Central Bank, and the European Stability Mechanism, the fund created to keep stumbling European nations afloat. According to a Tuesday report in the German newspaper Süddeutsche Zeitung, Tsipras has followed through on only 14 of the 48 reforms he promised for a third, 86 billion euro, or $95 billion, bailout he agreed to in August. The paper also reported that Athen’s European creditors plan to hold back an October payment of $3.32 billion.

In August, Tsipras agreed to a host of changes, including reforming Greek labor markets, raising taxes, putting state assets up for sale, making spending cuts, and making changes to Greece’s generous pension system, like raising the retirement age. So far, he’s managed to push through bills on a property tax and punishments for early retirement, but he’s failed to put in place taxes on private school tuition or to begin privatizing Greek ports.

“There is growing concern in Berlin and among other creditors that reforms are already beginning to slide in Athens,” Mujtaba Rahman, head of the Eurasia Group’s European practice, said Tuesday. “This was expected next year, but the fact it is happening now is an indication of just how challenging the situation remains with Greece.”

The German newspaper’s report came as Dombrovskis acknowledged the foreclosure impasse and warned Tsipras’s leftist Syriza party to speed up the reform process. “There is no time to lose. There is a need to work very actively to modernize the Greek state and economy,” Dombrovskis said Monday.

Perhaps even more pressing is a planned 25 billion euro bailout payment to recapitalize Greek banks, which are badly in need of cash after extended closures, daily cash withdrawal limits, and emergency measures designed to keep money in Greece this past summer. This, too, depends on whether Greece can deliver the tax increase and privatization of public assets its government agreed to.

Looming over all of this is the International Monetary Fund. The IMF said it would not participate in the bailout unless Greece, plagued by years of anemic economic growth and unemployment at 25 percent, delivers the reforms it has promised; IMF officials are currently in Greece reviewing its progress. IMF chief Christine Lagarde wants some of Greece’s debt to be forgiven, something Germany says is illegal. Lawmakers in Berlin have warned they might not participate in future bailouts without the IMF on board.

Tsipras’ failure to deliver reforms in a timely fashion is raising particular worry in the German capital. A summer standoff between the Greek prime minister and Berlin, which saw Tsipras and the Greek people reject an austerity deal in July only to accept harsher reforms in August, left many, including German Finance Minister Wolfgang Schäuble, concerned that the government in Athens would not follow through on what it has promised. Germany is the largest contributor to the bailout fund.

Photo credit: Sean Gallup/Getty Images