TFTB: Clarifying A Few Facts On The “Greek Bailout”

This morning, as I was sitting on my balcony overlooking the ocean and sipping a very strong cup of coffee, I thought about the ongoings in Greece. As I began scanning headlines, I realized that there were several misconceptions about the current situation that were important to clarify. 

Contrary to popular belief and numerous press reports, a bailout for Greece was NOT approved or created. What did happen during this past weekend’s massive negotiation session was nothing more than an agreement to work on a plan to obtain the approval for a bailout. In other words, Tsipras must ask the Greek parliament to implement an austerity program and agree to terms that are much harsher than those just rejected by the recent referendum. Such a request will not be easily accepted, and will likely lead to a revolt within Tsipras’ party.

As one Eurozone Bank Official commented:

“Greece was asked to surrender unconditionally.” 

But assuming that Tsipras can obtain approval, the Eurozone leaders will begin to negotiate the 3rd Greek bailout. According to the Atlantic:

“The deal states that Greece will get its bailout—an €86 billion loan—from the European Stability Mechanism (ESM), but, prior to approval by the European Commission, Greece must implement a series of reforms by Wednesday including measures to increase tax revenue, streamline its pension program, and “monetize” €50 billion of public Greek assets in a private fund to make ESM repayments and recapitalize banks. Under the new agreement, Greece will also have to make a request for continued support from the IMF to be considered for the ESM loan.”

Let me remind you that the Greek economy is already in shambles. However, what the Eurozone is requiring of Tsipras is to renege on every promise that his party made to get elected. Furthermore, Greece was only given 72 hours to meet these requirements including pledging 25% GDP into a fund administered by the European Union. This precondition, which Greece must sign into law for a deal, would put Eurozone authorities at the ECB and in Brussels, rather than Athens, in charge of identifying and closing or breaking up sick banks and selling off Greek assets. 

If Tsipras completes this “Herculean” task, it will spell the end of his political career and will all but guarantee that Greece plunges into a far worse economic state.