Last week, Greek lawmakers once again voted for a bailout deal that no one - not Greece and not Greece’s creditors - truly supports. The deal, which will allow Athens to make a €3.2 billion payment to the ECB this week, averts near-term economic ruin but virtually ensures that the country will remained mired in recession for years as Europe once again displays its penchant for Einsteinian insanity by forcing fiscal retrenchment on states that are already struggling economically.
The deal still needs the approval of other European parliaments but is expected to pass - even in Germany. That said, the agreement with Athens comes at a cost for Chancellor Angela Merkel, whose bulletproof reputation has suffered over the course of the protracted standoff with the Greeks and will face perhaps its greatest test on Wednesday when the Bundestag will vote on the new bailout package. As FT notes [9], “the deal is certain to get German legislative approval thanks to support from the Social Democrats, but a big rebellion by Christian Democrats and their Bavarian sister party, the CSU, would represent the biggest challenge to Ms Merkel since she took power a decade ago.”
Meanwhile, Greek PM Alexis Tsipras will soon be forced to grapple with his own political future in the face of fierce party infighting that threatened to derail the bailout deal earlier this month.
Lacking the support he needs to win a confidence vote, snap elections now appear increasingly likely. Here’s Reuters [10]:
Greece's socialist PASOK party joined the main opposition on Sunday in saying it would not back Prime Minister Alexis Tsipras if he calls a confidence vote following a rebellion in the governing party over a new bailout deal.
Tsipras had to rely on opposition groups including PASOK to win a parliamentary majority on Friday in favour of the 86 billion euro bailout programme, Greece's third with international creditors since 2010.
By contrast, Tsipras suffered the biggest rebellion yet among anti-bailout lawmakers from his leftist Syriza party, forcing him to consider a confidence vote that would pave the way for early elections if he loses.
PASOK made clear that while it had backed the government over bailout for the sake of saving Greece from financial ruin, that support would not extend to any confidence vote in the coming weeks.
The party blamed Tsipras and Panos Kammenos, who leads the minority partner in the coalition government, for the fact that Greece had to take yet another bailout with tough austerity and reform conditions demanded by the euro zone and IMF.
"The government has signed the third and most onerous bailout. All the negative consequences for the country and its citizens bear the signatures of Mr Tsipras and Mr Kammenos," the party said in a statement. "We have no confidence in the Tsipras-Kammenos government and of course will not give it if we are asked."
On Friday, support for the government from within its own coalition parties fell below 120 votes, the minimum needed to survive a confidence vote if some others abstain.
And while Tsipras remains popular among voters, he, like Merkel, needs to preside over a strong government to ensure that the inevitable stumbling blocks along the road to implementing the bailout will not mean that the country faces ongoing political upheaval. One such stumbling block is of course the IMF, which remains skeptical of the deal's viability in the absence of writedowns from Greece's EU creditors. Here's what Christine Lagarde had to say [11] on Friday:
I remain firmly of the view that Greece’s debt has become unsustainable and that Greece cannot restore debt sustainability solely through actions on its own. Thus, it is equally critical for medium and long-term debt sustainability that Greece’s European partners make concrete commitments in the context of the first review of the ESM program to provide significant debt relief, well beyond what has been considered so far.
IMF participation is considered "indispensable" for many German MPs and in reality, the Bundestag is being asked to take in on faith that Merkel will be able to secure the IMF's support at some later date. Here's The Guardian [12]:
“Mrs Lagarde, the chief of the IMF, made very clear that if these conditions are met, then she will recommend to the IMF board that the IMF takes part in the programme from October,” Merkel told the broadcaster ZDF. “I have no doubts that what Mrs Lagarde said will become reality.”
Representatives from Merkel’s Christian Democratic Union and its Bavarian sister party, the Christian Social Union, want the IMF involved because of its reputation for rigour.
Lagarde, who has been pressing eurozone countries to provide Athens with “significant” debt relief, reiterated at the weekend that Greece’s European creditors must make “concrete commitments” on relieving the debt burden. She has said the IMF will wait until October to decide whether to participate. That would force lawmakers to vote without any guarantees that the Washington-based institution would have a role.
In short, the political ramifications of the Greek bailout have begun to reveal themselves both in Athens and in Berlin, and while both Tsipras and Merkel will likely survive the turmoil (albeit only after new elections have been called in Greece), the fractious nature of the political scene both in Germany and in Greece likely means that the bailout agreement will be thrown into question almost constantly going forward, creating a perpetual headache for markets and especially for the Greek populace.
