World Economy

Greece Bows to Demands, Seeks $59b Bailout

Greece Bows to Demands, Seeks $59b BailoutGreece Bows to Demands, Seeks $59b Bailout

In an 11th-hour bid to stay in the euro, the government of Greek Prime Minister Alexis Tsipras offered to meet most of the demands made by creditors in exchange for a bailout of €53.5 billion ($59.4 billion).

The proposal submitted to European institutions late Thursday almost mirrored the one from creditors on June 26, which was rejected by voters in a July 5 referendum. The package of spending cuts, pension savings and tax increases will face its first hurdle in the Greek Parliament on Friday.

Though Tsipras ceded ground, he insists long-term debt needs to be made more manageable to allow Greece to recover from a crisis that has erased a quarter of its economy. He has a growing support base that includes the US, European Union President Donald Tusk and the International Monetary Fund.

“We are definitely closer to a deal than ever, as Tsipras has in the end given in,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute in Washington, citing concessions such as speeding up the pension reform to start next year.

Merkel’s Hardline

Greece’s proposal includes creditors’ longstanding demands for sales tax increases and cuts in public spending on pensions. Greece also proposes the restructuring of its debt and a package of growth measures of €35 billion.

German Chancellor Angela Merkel, who leads the country that has been the biggest contributor to Greece’s bailouts, is coming under mounting pressure to soften her position on debt relief for Greece. Germany’s resistance to it has been a major obstacle to a deal.

“A realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” Tusk told reporters in Luxembourg on Thursday. “Only then will we have a win-win situation.”

Whether Greece can expect a writedown of its outstanding debts, which exceed 170% of gross domestic product, is another matter. Nevertheless, it will likely be addressed.

Home Front

“We think debt relief of some form will be on the table,” but structured in a fashion capable of winning German backing, Royal Bank of Scotland analyst Michael Michaelides said in a research report.

Even if Tsipras and creditors can reach a basic agreement, his greatest challenge may still lie at home.

“It seems quite likely that Tsipras will have to rely on opposition votes for this to pass, which means that from his personal perspective the referendum actually did a lot of good, as he is now the only credible leader of a national unity government,” Kirkegaard said in an email.