Tsipras accepts most of creditors’ demands

By Matthew Karnitschnig

The gesture from Athens is a marked shift by the populist Greek government, but it may be too late.

Greek Prime Minister Alexis Tsipras caved in to almost all of the demands of his country’s creditors in a letter sent just before its bailout program expired and it failed to make a crucial payment to the International Monetary Fund midnight Tuesday.
In the letter, Tspiras said that Greece was prepared to accept most of the conditions set by the IMF, the European Commission and the European Central Bank in a draft program handed to the Greeks on Sunday.

The olive branch is a marked shift by the populist Greek government, which had battled the institutions for five months on issues like pension reform, budget surpluses and value-added tax rates. But the question is whether it has come too late to make any difference — the expired program cannot be revived.
The fact that the creditors aren’t inclined to accept his overture suggests they are no longer in a rush to strike a deal. That means that for Greece to secure fresh funds, it will likely have to apply for a new bailout, a process that could take weeks new of talks. Tspiras is also holding out for some changes to the program that could prove to be a stumbling block.
“It won’t change anything, probably,” a source, who works for one of the creditors, said of the letter.
“Happy to discuss those proposals, but without urgency,” said a second source from a eurozone  government.
Tsipras’s approach towards creditor demands has shifted wildly.
A week ago, he said that a deal was very close. But after days of high-level talks, he called a referendum for July 5, asking Greeks whether or not they were prepared to accept the creditors’ offer — the price for unlocking a final tranche of aid that would keep Greece solvent for the next months. Tsipras condemned the proposal by the institutions as a “humiliation of the Greek people.”
In the most recent letter, he said Greece “is prepared to accept this Staff Level Agreement.”
Athens quickly denied that Tsipras had surrendered. “Reports that say the Greek government has fully accepted the institutions’ proposal do not stand,” said a government statement, stressing that there were still differences with creditors. “Several measures that the institutions are suggesting will not be enforced immediately but in stages so that the government can find equivalent measures to replace them.”
Whether or not the Tsipras considered the letter a concession, it made little impression on Germany’s Chancellor Angela Merkel.
“The government’s position is that we are waiting for the referendum. It’s not possible to enter into any talks about a new program until after the referendum and then we would need the agreement of the Bundestag,” she said in Berlin. “The future of Europe is not at stake here … Europe is strong and robust.”
Merkel defended her European credentials, saying “a good European is not someone who accepts compromise at any price.”
She said that her goal since the beginning of the crisis has been to “create new culture of stability in Europe.” In Merkel’s view, that means adopting tougher rules and safeguards like the European bailout fund instead of creating a “transfer union,” in which German taxpayers bear the risk for other country’s profligacy.
There was a bit more flexibility coming from Brussels. “The doors for negotiations are open,” said Valdis Dombrovskis, the EU’s vice-president for the euro.
The letter came as Greece defaulted Tuesday night on an IMF loan, failing to repay more than €1.5 billion. Without an ongoing bailout program, it risks a collapse of its banking system and a possible exit from the euro.
The situation is looking increasingly dire for the Greek economy. In an ominous development, the European Financial Stability Facility (EFSF), said it “takes note” of Greece’s failure to repay the IMF, saying “this would constitute an event of default for certain EFSF loans.”
The use of the word “default” is important. The EFSF, set up in 2010 to deal with the eurozone crisis, has lent €131 billion to Greece, making it the country’s largest creditor by far. If it feels Greece has defaulted, that could prompt the European Central Bank to scale back or end its support for Greek banks, currently worth €89 billion. Without that liquidity, Greece’s financial sector could fail.
The EFSF said it was weighing three options:
— Demanding the immediate repayment of outstanding principal and interest, something impossible for Greece.
— Writing off the loans.
— Holding fast, but reserving the right to act at a later stage.
Dombrovskis said that the Commission is going to ask member countries “not to take immediate action” on whether Greece is in default and to wait for talks on a new program.
In the letter, which was first reported by the Financial Times, Tspiras did push back in some areas. He held out for a lower level of VAT on the Greek islands, currently shielded from the top tax rate. This was one of the “red lines” that had blocked progress in talks.
He also agreed to reform the expensive pension system, but wanted early retirement privileges to end Oct. 31, not immediately as demanded by creditors.
“Thank you in advance for your support. I look forward to hearing from you,” the letter ends.
There has been no official response so far. The Eurogroup of eurozone finance ministers is holding a teleconference on Wednesday afternoon.