2015-08-18 10:32:29
Aug 15th 2015, 12:51 by P.W. | LONDON
A MONTH ago Greek membership of the euro was in peril, as Wolfgang Sch uble,
Germany s powerful finance minister, argued that Greece should leave the
monetary union for at least five years in what he euphemistically called a
time out . Any such exit, which would almost certainly have turned out to be
permanent, would have undermined a founding principle of the monetary union
that those joining the euro do so irrevocably. Even after euro-zone leaders
meeting at a crucial summit managed to agree upon a framework for a bail-out
agreement on July 13th the chances of it actually being concluded and avoiding
a Grexit seemed slim. Mr Sch uble made clear in the following week that he
still thought Greece should be temporarily expelled from the euro while Alexis
Tsipras, the Greek prime minister, said he did not believe in the agreement he
had just made at the summit.
Yet, on August 14th, the Eurogroup of euro-zone finance ministers gave the
green light to the bail-out, the third since May 2010, in which Greece will get
up to 86 billion ($95 billion) in rescue funding over the next three years.
The next hurdle is getting the consent of the German Bundestag, but this is
unlikely to be a problem since the bail-out now has the support of Mr Sch uble.
Even if national parliaments in smaller countries were to balk at the agreement
this would not derail it because the voting procedures of the European
Stability Mechanism (ESM), the euro zone s rescue fund, allow decisions to be
passed in an emergency with 85% of the votes, which are weighted by capital
shares reflecting the size of economies. This means that whereas a large
country like Germany can block such decisions smaller states cannot do so.
As a result, Greece looks set to get a disbursement of 13 billion ($14.4
billion) by August 20th, in time to redeem 3.2 billion of bonds held by the
European Central Bank (ECB), which come due that day. A further 10 billion
will be set aside immediately at the ESM to cater for a portion of expected
bank recapitalisation needs in an economy traumatised by the events of late
June and July when the banks were closed for three weeks and capital controls
were introduced. Greece will get a further 3 billion in the autumn, subject to
the government complying with key milestones in the formal agreement, the
memorandum of understanding. Altogether then the first tranche of funds will
amount to 26 billion. An additional amount of up to 15 billion will also be
made available to bolster the banks (taking the total to 25 billion) no later
than mid-November following a thorough appraisal of the banks including stress
tests.
Unlike the first two bail-outs, the IMF is not involved, as yet. The fund
remains scarred by its experience in the first one, in May 2010, when it
sanctioned its contribution in order to prevent wider financial and economic
contagion even though this meant breaking one of its cardinal rules, since it
could not state with a high probability that Greek public debt was sustainable
in the medium term. Now the IMF is insisting that euro-zone countries commit to
significant debt relief going well beyond what has already been provided (for
example by lengthening the maturities of European loans) as a condition for
joining the new bail-out. This creates a dilemma for the Germans in particular.
On the one hand they would like to have the IMF on board because they believe
it would be a sterner taskmaster than the European Commission in monitoring
Greece s compliance with the agreement and would also contribute some of the
bail-out money. On the other hand they are reluctant to offer the scale of debt
relief that the IMF has in mind not least since this might spur similar demands
from other rescued countries.
Even though the IMF s role is yet to be determined the Eurogroup s decision on
August 14th marks an extraordinary turn of events, enabling Jean-Claude
Juncker, the Commission s president, to claim that Greece was now irreversibly
part of the euro area. What has made the difference is the change of heart by
Mr Tsipras, who had won power in January this year promising to end the era of
reviled memorandums and bail-outs. That led to almost half a year of
confrontation with international creditors, reaching a climax when he called a
referendum in late June on their proposal and campaigned against it. Even
though he prevailed in the referendum, with a 61% no vote, it was a Pyrrhic
victory as the economy was strangled through capital controls while Germany
backed by several other euro-zone countries sought to force Greece out of the
euro. That forced the prime minister to junk his previous strategy and to
accept the harsh terms set by creditors.
That decision on the part of Mr Tsipras has made the third bail-out agreement
possible but it has split the ruling Syriza party, which has 149 seats out of a
total of 300 in the Greek parliament, exposing the underlying divide between a
majority of relatively pragmatic MPs in the party and a significant minority of
vociferous and hard-line dissidents. On three occasions now, the Greek prime
minister has had to rely upon the votes of the opposition parties to force
through the harsh measures demanded by the rest of the euro area in order to
pave the way for a final bail-out agreement. The dissent within Syriza has
swelled. On the first crucial vote, just days after the summit, taken in the
early hours of July 16th, 32 members voted against legislation and six
abstained (while one was absent). In the vote of August 14th, preceding the
Eurogroup summit, 32 voted against and 11 abstained, taking the total number of
dissidents to 43.
The scale of the revolt is such that Mr Tsipras will probably have to call a
vote of confidence in parliament. If that goes against him, it will precipitate
an early election. Since the prime minister remains remarkably popular, that
could reinforce his position as the leader of a more realistic party, shorn of
Syriza s hard-left wing, auguring well for the chances of Greece s third
bail-out agreement working. But this outcome cannot be taken for granted. Just
as before, political risk could blight Greece s prospects.