Daily Bulletin

The Times Real Estate

.

  • Written by The Conversation
imageUnder pressure to do a deal: Alexis Tsipras. EPA/Jerry Lampen

When Alexis Tsipras walked into the meeting with the remaining 18 eurozone leaders at the weekend, he may have had in mind, not a line from Greek antiquity, but perhaps one from the Italian middle ages. Dante Alighieri’s version of hell had a simple message at its gate: “Abandon all hope, ye who enter here”. It was a very difficult, and very long, meeting for Tsipras, but my first impression is that he managed the best he could under extremely difficult circumstances.

For a start, the Greek prime minister had to explain to eurozone leaders why he was pushing for an economic agreement which, at the end of the day, had been overwhelmingly rejected in a referendum by his own people. This raised a significant issue of trust and credibility. Despite Tsipras having won Greek parliamentary support (251 out of 300 Greek MP’s gave him the “green light” to strike a deal; perhaps any deal that would keep Greece in the euro) was he trustworthy to implement what was about to be agreed?

Staring into the abyss

In fact, Tsipras had very little room for manoeuvre. Greek banks have been closed since late June, capital controls are firmly in place and cash reserves available at Greek banks are at an all-time low of around €500m (only 0.5% of the €120 billion deposits of Greek citizens “sitting” in Greek banks, which, due to capital controls, Greeks cannot withdraw). Tsipras knew that, without a deal, Greek banks would definitely collapse. To make things worse, Greece had already defaulted on an IMF debt repayment of €1.6 billion.

imageA line in the sand. The banks left Greek hands tied.afilitos, CC BY-NC-ND

To add further to the drama, Greece needs to make a €455m debt repayment to the IMF today and a further €3.5 billion debt repayment to the ECB in seven days. The implication of all this is that Tsipras desperately needed an agreement to enable the ECB to inject additional Emergency Liquidity Assistance (ELA) to Greek banks to support their cash buffer and save them from collapse. He also needed to secure a “bridge loan” from the institutions to pay back both the ECB and the IMF.

Getting it done

Details of the agreement are still emerging so I will discuss briefly some of these the way I understand them:

Firstly, Greece needs to pass, within the next 48 hours, through the Greek parliament (possibly as one parliamentary bill) privatisations and a number of structural reforms to which the current government had thus far objected. This is supposed to be some type of “goodwill” gesture to Greece’s partners in order for “Troika” money to start flowing into the country. This is a very big challenge for the SYRIZA-ANEL government and it is very likely to prove hugely damaging for what was always an unusual coalition. It is also a big challenge for a number of SYRIZA MPs (including energy minister Panagiotis Lafazanis) who prefer a return to the drachma rather than an austerity-oriented deal with the Institutions.

Tsipras will have to pass the parliamentary bill with the help of the pro-European parties (ND, Pasok, Potami) at the same time while trying to reshuffle his government by relying (again) on pro-European parties. The bill may pass, but the government’s days may be numbered.

Further – and contrary to the will of Tsipras – it appears that the International Monetary Fund (IMF) will stay firmly into the picture as Greece’s lender. Tsipras (and his colleagues) have consistently opposed IMF involvement on the grounds that it is an outsider to European matters. The irony of the matter, of course, is that debt relief, which Tsipras has been asking for, has been repeatedly promoted by the IMF. After all, the IMF emphatically admitted (only three days prior to the referendum) that Greek debt is unsustainable.

imageA victory? Alexis Tsipras.GUE/NGL, CC BY-NC-ND

Greece’s debt currently stands at around 178% of its GDP. Eurozone leaders have repeatedly rejected any idea of a haircut in the face value of Greek debt. The current agreement opens the door, however, for debt relief by pushing (subject to Greece proceeding with privatisations and structural reforms) its average debt maturity, currently at 16.5 years further into the future.

This, on its own, will be a significant debt relief which Tsipras can sell to his people. In maths, the Euclidean algorithm has been used for reducing fractions to their simplest form. Tsipras – with the instrumental help of his polite and down-to-earth finance minister Euclid Tsakalotos – will be able to claim that, subject to passing the parliamentary bill through the Greek parliament and reshuffling his government into a viable and operational group, he has actually pulled off a trick which will reduce the Greek debt-to-GDP ratio to its simplest sustainable form.

Costas Milas does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

Authors: The Conversation

Read more http://theconversation.com/with-hopes-low-tsipras-may-have-just-done-the-best-deal-possible-for-greece-44613

Business News

How Australian Startups Should Responsibly Collect, Use and Store Customer Data?

Owing to the digital landscape, data is the most important currency in the market. From giant e-commerce sharks to small businesses, every company is investing heavily to responsibly collect data an...

Daily Bulletin - avatar Daily Bulletin

Revolutionising Connections - The Power of Customer Engagement Software

As time goes by, customer expectations keep on rising ever so rapidly. Businesses that must keep pace will need future-ready tools to deliver connectedness at every touchpoint. Customer engagement a...

Daily Bulletin - avatar Daily Bulletin

Benefits of Outsourced Bookkeeping for Growing Businesses

Outsourced bookkeeping can have numerous benefits regardless of the size of business. The main advantage being it can provide more than just cost savings. So, if you are thinking of outsourcing your b...

Daily Bulletin - avatar Daily Bulletin

LayBy Deals