Punishing Plan...

European leaders agree to Greek rescue plan

By Anthony Faiola and Ylan Q. Mui

Greece acquiesced early Monday to a punishing ultimatum from European leaders, agreeing to lightning-fast passage of reforms and a pledge to strap itself in a fiscal straitjacket to save its banks and stay in the euro.

After a marathon, 17-hour overnight session — one of the most contentious diplomatic standoffs in European Union history — the announcement of a unanimous deal was made in Brussels. It requires approval from several European parliaments.

Rifts had opened up between European leaders over just how hard a bargain to drive with long-suffering Greece. Yet hard-line nations led by Germany demanded firm gestures from its unpredictable leftist Prime Minister Alexis Tsipras to restore lost trust. And by Wednesday, Athens must push through parliament a series of cuts and reforms, including divisive overhauls of its pension and tax system.

“There are strict conditions to be met,” said an exhausted-looking Donald Tusk, president of the European Council. But, he added, “it gives Greece a chance to get back on track with the support of European partners.”

Financial markets welcomed the news after wild swings over the past weeks. Main stock exchanges in Asia and Europe were higher. The euro exchange rate against the U.S. dollar dropped slightly.

Successful passage, however, would not guarantee that Greece will be saved. Rather, it would merely open the door to a final agreement this week for a three-year bailout – Athens’ third in five years — worth as much as $96 billion and carrying far more onerous conditions than a deal rejected in a Greek referendum on July 5.

The strict pact was portrayed by hard-line nations including Germany and Finland as essential to restore trust in the unpredictable government in Athens. But it was also a financial gun to the head: If Greece rejected the proposal or fails to fully comply, its banking system could collapse within days.

German Chancellor Angela Merkel on Monday offered cold comfort for the Greeks.

“All and all, I think you can say the advantages outweigh the disadvantages,” Merkel said. If the program is strictly followed, she said, “I think there is a possibility to return to the growth path, but it is going to take a long time and it is going to be an arduous road.”

European leaders had seriously clashed over the deal to rescue Greece, with Germany and Finland taking a hard line and the leaders of France and Italy expressing a distinct sense of unease over the German position — worried that it was undermining the European ideal.

The result was particularly bittersweet for Greek Prime Minister Tsipras, a leftist maverick who over the course of the last two weeks went from defiance to near-total capitulation. He now faces a tough and humbling battle to push the measures through parliament as internal dissent brewed within his far-left Syriza Party.

It remained unclear if Tsipras could comply with creditor demands to win the passage of sweeping measures by Wednesday without putting down an insurrection within his party, being forced to forge a new unity government, call for new elections or even resign.

He did, however, come home with something of a carrot — a commitment from Greece’s creditors to address the country’s crippling debt but one that is linked to Greece’s ability to privatize its sprawling state-run industries.

“Today’s agreement maintains liquidity and gives hope of recovery,” Tsipras said as he left the summit in Brussels, according to a translation in Greek media. “We know a deal will be difficult to implement and may be recessionary.”

To keep up the flow of cash if a bailout is approved, Greece must take dramatic and monitored steps to modernize its economy by introducing competition into everything from bakeries to drug stores, sell off power companies and introduce labor market reforms.

At home in Greece, calls from the left had been growing throughout the evening for Tsipras to reject the deal and accept the dire consequences.

Seventeen Syriza members did not support his request for a bailout from Europe last week. The next day, 15 members of Syriza who initially supported the plan vowed not to do so again.

On Monday, one of the leaders of Syriza’s parliamentary group posted a message Facebook calling on Tsipras to leave Brussels and hold a new round of elections.

“Do not accept it!” he wrote. “Cancellation of the bailout!”

On Twitter, the hashtag #ThisIsACoup was trending Sunday with calls for Tsipras to reject the deal. The prime minister’s Facebook page was flooded with comments urging him to defy Greece’s creditors: “Whatever happens, do not give up! We will fight together until the end!” one user wrote.

Two sticking points held up an agreement until 10 a.m. Brussels time. One was the involvement of the International Monetary Fund, which Greece was compelled to accept. The Greeks also bristled at demands to put up 50 billion euros in assets that could be sold off to recapitalize banks and pay back debt. Ultimately, Greece was largely forced to swallow the measure, although it won a concession to funnel some of the funds to stimulus.

But the quarrels in Brussels were not limited to Greece and its creditors. More conciliatory nations, including France and Italy, were chafing against the bloc of hard-liners, insisting that some of their demands amounted to a humiliation of Greece.

As talks stretched into Monday morning, tempers began to fray. Dutch Prime Minister Mark Rutte , a hawk on Greece, had what the Dutch newspaper de Volkskrant described as a “fierce altercation” with the softer-lined Italian Prime Minister Matteo Renzi. During negotiations on Saturday among European finance ministers, Germany’s Finance Minister Wolfgang Schauble — one of the leaders of the hard-line faction in favor of reforms — snapped at European Central Bank President Mario Draghi: “I’m not stupid,” he said, according to news reports.

On Sunday, French President François Hollande also appeared to publicly rebuke Berlin for proposing a clause — which appeared to have been cut from the draft — that would temporarily kick Greece out of the euro if it failed to reach a deal with its creditors.

“To deprive ourselves of Greece . . . is to deprive ourselves of a country at the very heart of our civilization,” Hollande said Monday.

Merkel — who had largely counted on the support of major European leaders for a tough hand with Greece as recently as two weeks ago — insisted the tough conditions for a deal were a question of rebuilding trust. Tsipras, after all, had called a sudden referendum on a bailout and campaigned against a deal a week ago. Now, after his people resoundingly backed a no vote, he was nevertheless going hat in hand to Brussels and promising to commit to tough austerity anyway.

Merkel still needed the permission of her own angry parliaments to formally open talks – a task she could attempt as soon as Thursday, but only if Tsipras pushed through the pre-request votes on Wednesday.

Greece, however, is running out of time.

On Monday, the European Central Bank (ECB) is slated to discuss whether to increase the amount of emergency funding available for Greek banks. Its decision will be key to whether the banks — closed since June 29 — could be reopened this week, although even if they do, a strict limit on withdrawals and transfers is likely to remain in place.

Greece also cannot afford to make a 3.5 billion euro debt payment to the ECB on July 20. European finance ministers were set to consider a short-term bridge loan of about 7 billion euros so Greece could pay its bills until the broader rescue package lands.

“If you don’t have an agreement,” one Greek official familiar with the ECB discussion said, “we’re going to have a failed state.”

The total rescue effort could amount to as much as 87 billion euros in emergency funding over the next three years, including 10 billion to 25 billion euros to shore up its fragile banking system. The package is significantly more than Greece’s initial requests as the banking shutdown of the past two weeks choked the economy, exacerbating what already was the deepest recession of any developed nation since World War II.

As a precondition to releasing any aid, euro-zone leaders wanted proof of Athens’s commitment to enacting the harshest austerity measures in years. Leaked drafts of the proposal called for Greece to pass about half a dozen broad-based reforms by Wednesday or lose its chance at the financial lifeline. Only if Greek lawmakers passed the proposal would euro-zone finance ministers agree to even begin negotiating the details of a bailout package.

“Of course this won’t be an easy agreement, and we are fully aware of that,” said Dora Bakoyannis, a member of Parliament from opposition party New Democracy and former minister of foreign affairs.