Greece must legislate ‘six prior actions’ by Wednesday • 'Timeout' now an option

A draft document prepared by the Eurogroup and currently in the leaders’ hands states that the Greek parliament must “legislate six prior actions” within three days by Wednesday, 15 July.

It will now be up to the leaders with Greek prime minister Alexis Tsipras to agree on what the finance ministers failed to agree upon during their earlier meeting. In a tweet after the leaders broke off the discussions for a break to consult with their technical teams, Prime Minister Joseph Muscat said that the Eurogroup document is “most significant step so far” but there is the need “to focus on key points”.

#EuroSummit breaks for consultations. #Eurogroup document is most significant step so far. Need to focus on key points -JM

— Joseph Muscat (@JosephMuscat_JM) July 12, 2015

In what points towards a complete turnaround by the Greek side via a seemingly compliant position to what everything the creditors are demanding, finance minister Euclid Tsakalotos was told that the legislation will have to focus on VAT, pensions, justice and administration, the independence of the statistics agency, general good governance and the Bank Recovery and Resolution Directive (BRRD).

The question however is whether the Greek government will find the necessary support in parliament.

“Without any money coming in, they saw the catastrophe approaching,” Finance Minister Edward Scicluna said, asked how come Greece was agreeing to proposals that went against the result of the bailout referendum.

A successful legislation on the six priorities by the Greek parliament will then trigger a meeting of the Eurogroup – as early as Thursday – to agree on a mandate allowing the European Stability Mechanism (ESM) to start negotations on a memorandum of understanding with Greece.

The MoU will include a clear timetable for benchmarks and milestones to be agreed with the institutions.

A major pension reform must be in place by October 2015; Greece must implement an ambitious market reform which would include the liberalization of ferries, milk production, bakeries, Sunday shop sales and the privatization of electricity generation. The ministers have agreed to “a concession” by the Greek finance ministers for “an exception to be granted” for over the counter medicine.

The “more sticky”, Scicluna said, are labour market reforms to introduce collective bargaining and industrial relations among others, which carry out reforms to strengthen banks. This includes non-performing loans, strengthen bank governance and the manner by which directors are appointed – among others.

On top of this, Greece has three other conditions: scale up the privatization programme, guarantee the impendence of the country’s privatization unit and carry out an overhaul of public administration by drafting legislation with institutions reflecting best practices.

‘Grexit no longer a taboo’

In the eventuality that no agreement is reached, Greece and the creditors will start negotiating “a timeout” from the euro area – “a managed temporary exit”, according to Scicluna.

“You help the country with restructuring its debt and the humanitarian crisis but you also give it the chance to be in control of its destiny,” the finance minister said. This scenario would see Greece returning to the Drachma – its old currency – hoping for a boost in tourism through a devaluation of the currency.

“The interesting point that it [Grexit] is no longer a taboo. It is now being mentioned as a possibility if their trust is lost once again. It’s no longer a question of negotiations. It’s about whether Greece will make it under these conditions.”

Bailout in the region of €86 billion

Greece’s financing needs, debt sustainability and bridge financing fall under a bailout estimated by the ESM and the IMF to reach between €82 and €86 billion.

€7 billion will be dispensed by 20 July, €5 billion by mid-August and a minimum of €10 billion for the banks to capitalise.

“This is the immediate oxygen that Greece needs,” Scicluna said.

Tsakalotos admits ‘trust cannot be built on promises’

According to Scicluna, the Greek finance minister agreed to the majority of the document save for at least one condition involving the International Monetary Fund.

The creditors want IMF to be included in all future negotiations – a condition requested after any reference to the IMF was excluded from the law approved by the Greek parliament on Friday. It is yet to see whether Tsipras will agree to this condition during the summit or seek parliamentary support.

“The basis of this document is that rebuilding trust is crucial. Tsakalotos himself admitted that trust cannot be proven and, that once lost, it’s lost. It cannot come through talks, or document … not even by a parliamentary vote. The ownership of this package is more crucial than anything else,” Scicluna said.

Several member of states have also requested “a reduction of the financial envelope” to be issued by the Eurogroup, aiming at a strategy that would see Greece venturing towards the international markets.