After agreeing in principal to further fiscal reforms in July, Greece and European creditors reached a preliminary deal on Tuesday for the country’s third bailout loan in five years.
The European Commission, European Central Bank, and International Monetary Fund were all party to the talks.
The plan, submitted by Prime Minister Tsipras to Parliament on Wednesday, would secure 85 billion euros ($95 billion) for Greek banks (10 billion euros up front) and government funds.
A loan payment due to the European Central Bank of 3.2 billion euros by August 20 would also be covered by the reported terms of agreement.
In return, Greece must take more austerity measures which results in a gross budget surplus of at least .25% of 2015 GDP; sell state assets such as sea ports, rail lines, telecommunication companies, and real estate holdings; deregulate the state’s energy and pharmaceutical markets.
While approval of the deal by eurozone finance ministers is expected, the greater challenge for Tsipras will come from within his own Syriza party (Coalition of the Radical Left). The party was voted into Parliament last January largely on an anti-austerity platform.
As a result of certain parliamentary opposition to domestic reforms, a vote on the deal could be delayed by Speaker Zoe Constantopoulou until Thursday.
In order to nudge the national budget into surplus territory, Greek negotiators agreed to tightening pension program requirements, lowering public-sector wages, increasing income taxes, and loosening market-regulation controls.
None of the reforms will be popular with the Radical Left party. Even some of the northern eurozone ministers remain skeptical that a final agreement can be reached, given that one top Greek official described it as “a very tough deal.”
“There remains work to be done with details,” said Finnish Finance Minister Alexander Stubb. “We must take one step at a time. Agreement is a big word.”
While Greece’s economy is forecast to contract for the next year and a half, bailout terms were negotiated on the assumption that real GDP (output adjusted for inflation/deflation) would start to grow again in 2017 at an annual rate of 2.7%.
[Reuters] [Bloomberg] [AP] [Photo courtesy Ronen Zvulun]