Complications In Greece Ahead Of Parliamentary Vote
When Eurozone officials and Greek Prime Minister Alexis Tsipras finally agreed on terms for a third bailout package for the ailing nation on Monday morning, onlookers were relieved. It seemed that global markets would finally be able to hit pause on the months of uncertainty surrounding long-persisting talks between the nation's government and its European creditors.
But the deal has come under fire, as 109 of the party's 201 Central Committee members were reportedly advocating a ‘No' vote ahead of a parliamentary referendum on the bailout package Wednesday night.
The lawmakers called the Eurozone's proposed terms "humiliating" in a formal statement, saying that they were a direct result of "economic strangulation." According to the Syriza faction, the principles of the deal are incompatible with the ideals of the Left. Indeed, many pundits think the austerity-laden agreement -- featuring spending cuts, consumer tax increases and restructured pensions -- is harsher than the one Greeks rejected in a public referendum on July 5.
Greek Deputy Finance Minister Nadia Valavani joined the Prime Minister's' critics on Wednesday, as she resigned from her post just hours before the vote was scheduled to begin.
Related Link: Greece Receives Bailout Deal: Now What?
Political commentator Alexis Papahelas told the Guardian that it Tsipras would need to keep the number of defecting MPs below 40 to avoid unforeseen circumstances. According to The Wall Street Journal, the terms still have a good shot at making it through the Greek parliament, mostly thanks to support from opposition parties. Nevertheless, the swell of dissent within Tsipras' own coalition mean that passage is anything but a guarantee.
The IMF Blasts Europe
To add to the frustration over the proposed terms, the International Monetary Fund made public its critique of the bailout package on Tuesday. According to the BBC, Eurozone officials saw the report before the closed talks on Monday morning. In June, Greece became the first developed Western nation to default on a loan to the IMF.
According to the international creditor, Greece's debt "has become highly unsustainable." The organization that "debt relief measures that go far beyond what Europe has been willing to consider so far" are the path toward an end to the country's woes.
The IMF expects Greece's debt to peak at about 200 percent of GDP within the next two years. The U.S.'s debt to GDP ratio during the Great Depression topped at under 45 percent. In 2011, in the midst of the Great Recession, it was still only 67 percent.
Euro creditors, the IMF said in the report, will have to accept significant haircuts on the debt if they do not extend longer-maturity bonds. Greece will not be able to make its payments on time under current terms, it said, given the state of its economy, which was only weakened by capital controls over the last two weeks.
The IMF is also skeptical that Greece will be able to keep up with its ambitious growth targets, pointing out that neither the government nor the Euro have yet outlined a clear domestic strategy. Building domestic output will be especially difficult, as the country will also be required to maintain a 3.5 percent GDP surplus, the report said.
Many Syriza members are welcoming the IMF's anti-austerity position. Marina Prentoulis, Syriza's representative in the U.K., reinforced the international institution's stance in an interview on Britain's Radio 4. "They still don't want to discuss the debt," she said. "We see a split between the IMF and the European Union….We hope that the people of Europe will realize the games they have been playing."
A host of notable economists also took to Twitter to back up the IMF's claim that the current package would prove insufficient or even counterproductive in the long run.
Gabriel Sterne, Head of Global Macro Research at Oxford Economics:
IMF to be applauded for its new transparency. Very positive development to see Fund climbing out of Europe's pocket http://t.co/uchlO1sUjd
— Gabriel Sterne (@GabrielSterne) July 15, 2015
Robin Bew, Managing Director of The Economist's Intelligence Unit:
— Robin Bew (@RobinBew) July 15, 2015
Mohamed El-Erian, Chief Economic Advisor at Allianz
— Mohamed A. El-Erian (@elerianm) July 15, 2015
Concern From Outside The Euro
Many EU member states outside of the currency union are also calling foul. The bailout proposal includes plans for a bridge loan to Greece provided through the European Financial Stability Mechanism, to which all EU countries (even those not in the the Eurozone) contribute funds. However, the disbursement of the cash to Greece requires only a two-thirds majority vote of the contributing states, and so the U.K. and other non-Eurozone members are powerless to block it despite their opposition.
The Greek parliament recently initiated debate over the Euro's bailout package and is scheduled to vote later Wednesday night. Public riots have erupted outside the Capitol as the country's representatives decide its fiscal future.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.