Austerity

Greek Plan Accepts Austerity to Get Debt Relief

By LIZ ALDERMAN and JAMES KANTERJULY

Only a day after grim predictions of financial and social collapse in Greece, a scramble appeared underway to work out the details of a new bailout package to bring the country back from the brink of falling out of the euro.

As details of the new offer emerged, it appeared that Prime Minister Alexis Tsipras was capitulating to demands on harsh austerity terms that he urged his countrymen to reject in the referendum last Sunday, like tax increases and various measures to cut the costs of pensions.

But Mr. Tsipras sought a three-year bailout loan totaling 53.5 billion euros (about $59 billion) and asked creditors to commit to discussing restructuring the nation’s massive debt. The amount was more than it would have been without a nationwide banking shutdown that has pummeled the economy. If granted, it would come on top of 240 billion euros in bailout loans Greece has received since 2010. Mr. Tsipras seemed to have gained ground on debt relief, his one bedrock demand. Germany’s finance minister, Wolfgang Schäuble, finally gave a little on that Thursday, admitting that “debt sustainability is not feasible without a haircut,” or write-down of debt, even if he then appeared to backtrack.

Donald Tusk, a former prime minister of Poland and the president of the European Council, said on Twitter that any “realistic proposal from Athens needs to be matched by realistic proposal from creditors on debt sustainability to create win-win situation.”

Mr. Tsipras went before his cabinet to seek a commitment for reform measures in the new plan that, presumably, went beyond what had been offered previously. He will seek the approval of Parliament on Friday. Much may hinge on his ability to persuade the more radical elements of his Syriza party to support a package that in essence was anathema to many of them last week.

It is still too early to gauge whether this prospective bailout will be any more effective than earlier pacts in balancing the demands of the creditors against some relief from austerity.

What was breathtaking, however, was how in a matter of hours the entire dynamic in the Greek crisis seemed to shift, from apocalyptic warnings of a Zimbabwe in the Balkans, to a fresh optimism that the basics of a deal could be worked out.

The question now is whether that apparent change of heart reflected a new political determination to cut a deal that keeps Greece in the eurozone.

The representatives of Greece’s main creditors — the eurozone nations, the European Central Bank and the International Monetary Fund — are scheduled to review the new proposal in Brussels on Friday. Approval will also require an assessment by the 19 finance ministers of eurozone countries. That meeting, of the so-called Eurogroup, has been scheduled for Saturday afternoon in Brussels.

One analyst said he thought the offer would be well received by creditors.

“The package takes a very substantial step in the right direction, and it should move us closer to a deal,” said Mujtaba Rahman, the Europe director for the Eurasia Group, a political risk consultancy, shortly after reading one version of the Greek offer translated into English.

“The question now is whether the Greeks are actually going to implement some of the measures over the course of the weekend by putting them before their Parliament as German officials seems to be demanding,” he added.

Prospects for a deal improved through the day as a procession of European leaders came around to Mr. Tsipras’s conviction that pure austerity measures were insufficient in their own right and had to be accompanied by a commitment to reduce the burden of Greece’s stupendous debt.

Greece received vital political support and technical assistance from France, help that highlighted the contrasting approaches being taken by the two leading powers in the European Union. Germany has played the bad cop, standing firm against concessions to Greece and, in Mr. Schäuble’s case, openly doubting that the country really belonged in the eurozone. France has thrown itself into the task of finding a deal.

The French assistance appeared to be an effort to make sure the Greek proposal, submitted just before a midnight deadline, would be as thorough and salable as possible to Greece’s creditors and would smooth the way for a compromise on a new bailout package to keep Greece afloat financially and inside the euro.

“There is a group of people who have been sent to help the Greeks, to try to transform words into action,” said a French government official with knowledge of the effort.

France has been the most steadfast major nation in Europe supporting Greece ever since Mr. Tsipras was ushered in to power in January on a mandate to repudiate austerity. Paris has been particularly outspoken in recent days about the need for a compromise that would help Greece and hold the eurozone together.

By contrast, Germany’s chancellor, Angela Merkel, has shown little inclination to compromise on demands that Greece take actions to show that it can be fiscally responsible before even considering new bailout aid.

Neither French nor German officials would discuss France’s involvement in the Greek proposal in any depth. But the development raised questions about whether France and Germany have split heading into the final negotiations or whether there is a back-room understanding between Paris and Berlin.

Mr. Tsipras and his team spent the day in meetings as they put together a proposal and sought to ensure domestic political support for it.

Ms. Merkel, speaking later in Sarajevo, reiterated her opposition to actually writing off some of Greece’s debt, though she was less definitive about steps like reducing interest rates or extending the payment period as ways of helping Greece manage its indebtedness.

Germany has taken an increasingly hard line toward Greece since the nation voted no on Sunday to an earlier bailout program in a referendum that sent political shivers across Europe. In the wake of the chaos sparked by the vote, Ms. Merkel flew Monday to Paris to join President François Hollande of France to discuss what to do next with Greece.

The situation has put Mrs. Merkel into the toughest position of her career. She has been forced to balance an angry German public, which sees no reason to give Greece billions of additional bailout money or to write down its debt, against the danger of a Greek exit from the eurozone.

Greece is a tiny country with limited economic impact on Europe, but considerable strategic value. European political experts had wondered throughout the week whether Ms. Merkel, as the leader of the most powerful country in Europe, would stand for becoming the first postwar European leader to countenance the first step back in Europe’s march toward greater integration.

They also wondered if she was willing to risk the prospect of a failed, embittered state within the European Union and NATO, an open wound in Europe’s southern and eastern flank that would be an open invitation to Moscow to exploit already inflamed division within the European Union.

When Greece in 2012 was the epicenter of the last flare-up in Europe’s long-running debt crisis, many French officials steadfastly maintained that the eurozone was fundamentally a historic project, and that it should not risk being broken up by the departure of Greece, nor of any other euro member country.

That sentiment was renewed by Prime Minister Manuel Valls of France on Wednesday. “France refuses that Greece leaves the eurozone in the name of our position and our commitments,” he told lawmakers in the National Assembly on Wednesday in a speech that was broadcast live on Greek television. To secure a deal, though, he said Greece needed to pledge to modernize its economy and overhaul pensions.

He also suggested that Mr. Tsipras’s most pivotal request — a program to make Greece’s mountainous debt more sustainable — be taken seriously by other European countries. Until recently, that has been nearly a taboo idea in Europe’s halls of power, since European taxpayers are currently on the hook if Greece defaults on its debts.