Greece has signed up to a provisional agreement that will pave way for an extension of its bailout programme until June, breaking weeks of deadlock between the government of Alexis Tsipras and Greece's international lenders.
For hardline creditor countries such as Germany, the requirement that Greece submit a list of reform proposals and agree to a further substantive review in April was enough to assure a sceptical public that Greece will not be given a free lunch in its bid for loan extensions. Greek finance minister Yanis Varoufakis said Europe and Greece had "turned a page" with the agreement. Through bargaining, his government had managed to combine things that are "usually imagined to be contradictory", he said, "logic and ideology" and "respect for the rules and respect for democracy". While many were struck by the glaring lack of specifics in the agreement, Mr Varoufakis welcomed the stylistic nuances of the document as "constructive ambiguity".
While attention today will be on the eurogroup’s response to the reform plan which appeared last night to have already been delayed, the other pressing matter is how Syriza plans to sell the plan to the Greek public.
Crucial
Syriza’s support has remained high since the election a month ago, but the Greek prime minister will need to convince the hard left wing within his own party and his coalition partner, the Independent Greeks, that his government’s decision to seek an extension of its programme is not a capitulation to Brussels. This week’s events will be crucial.
Today, the eurogroup of finance ministers are expected to hold a conference call to consider the reform proposal, with five countries required to secure the sign-off of their national parliaments this week – though this will, in some cases, involve securing the support of relevant parliamentary committees rather than the full parliament.
Parliamentary approval must be secured before Friday, with the Greek bailout due to expire on Saturday.
The ECB is also watching matters closely. With Greek banks due to reopen today after yesterday’s public holiday, known as “clean Monday”, all eyes will be on possible signs of deposit outflows as the banks open their doors for the first time since the provisional agreement was signed.
ECB sources indicated on Friday that capital controls were not on the table, though the bank declined to comment on reports that the dangerous funding situation of Greek banks was used in the negotiating room in Brussels on Friday night to coerce Greece into signing the agreement.
Collateral
On a positive note, ECB sources have suggested that the bank could be open to readmitting Greek government bonds as collateral, reversing the move of February 4th, when Frankfurt stopped accepting the junk-rated bond as collateral.
The exchequer’s immediate financial position remains precarious. Against a background of falling tax revenues, a €1.5 billion bond repayment is due to the IMF in mid-March. The country then faces a substantial repayment cliff of about €7 billion in the summer, when bonds fall due to the ECB.
Worryingly for Greece, German finance minister Wolfgang Schäuble indicated on Friday that the outstanding €7 billion or so due to Greece under its programme would only be available as long as the programme is “successfully completed”.
To this end, the devil will be in the detail of Greece's proposed reforms, and whether any changes to austerity measures prescribed by the Troika are deemed to be of "equivalent fiscal value" to the original measures proposed, as was suggested by Minister for Finance Michael Noonan on Friday.
