It’s really crunch time now for Greece.
This much was clear Sunday: Greece won’t get the massive bailout it urgently needs to stay in the euro unless it commits to much deeper economic reforms and shows it can deliver them.
That was the message from European finance officials during a second day of frantic diplomacy Sunday on Greece’s request for a new rescue.
Greek Prime Minister Alexis Tsipras, arriving for talks in Brussels with the leaders of the other 18 countries that use the euro, said he was ready to compromise.
Whether that will be enough to get the money flowing again soon, secure Greece’s membership of the euro and allow its banks to reopen, remains unclear.
German Chancellor Angela Merkel cautioned that Sunday’s talks would be “difficult, and there won’t be a deal at any price.”
Europe and the International Monetary Fund estimate Greece needs between 82 billion and 86 billion euros ($96 billion) over the next three years, according to a document drafted by the finance officials. They have already lent Greece about 233 billion euros since 2010.
The document says the Greek government needs to go way beyond a reform proposal it submitted last week, by making much more profound changes to its pension system, energy, labor and product markets, and scaling up a program of privatization.
The talks follows an ultimatum Europe gave Tsipras this week: Show us you’re serious about putting Greek finances in order, or you’re out of the euro.
Trust in Greece’s commitment to reform was shattered by January’s election of a prime minister fiercely opposed to austerity, and a series of government U-turns in the last two weeks — including calling a referendum to reject reforms it then signed up to days later.
Without agreement in principle to start talks on a bailout, the crisis in Greece will only deepen, dragging the country ever closer to exit from the euro.
That risk was stated explicitly in the document drafted by finance officials.
“In case no agreement could be reached, Greece should be offered swift negotiations on a time out from the euro area, with possible debt restructuring,” it states.
Greece’s banks have been shut for two weeks, and cash withdrawals are capped. The vital tourism industry is suffering. People are spending less, some public services have stopped charging, and the healthcare system is running out of imported medicines.
Greece needs to pay pensions and wages this week, and make a big debt repayment to the European Central Bank next week. Without an injection of funds fast, it may have to issue IOUs, a first step to printing its own currency.
The package of reforms Greece proposed included spending cuts, tax hikes, and plans to phase out tax discounts on some islands, among many other things. Greece also plans changes to public pensions, such as raising the retirement age, and steps to improve tax collection.
They’re very similar to ideas put forward by the country’s creditors in late June before Tsipras walked out of talks, triggering the collapse of the last bailout and forcing the closure of the banks.
Europe is insisting that those first measures be made into law by July 15, or formal negotiations on a 3rd bailout won’t begin.
Assuming Greece accepts a broader overhaul of the economy, there are still other potential roadblocks standing in the way of a third bailout.
Tsipras went into the talks looking for a commitment from creditors to restructure its debt. An outright debt cancellation — or haircut — has been ruled out by Europe, although it may be willing to push back the date when Greece needs to begin repaying its bailout loans, and extending their maturities.
And there’s another potential hurdle: Opinion in some other countries that use the euro, including Germany and Finland, is running high against another rescue. Taxpayers don’t want to put more public money at risk. A new bailout would need to be ratified by parliament in Germany, and a handful of other countries.