Late Friday night in Europe, Eurogroup leaders announced agreement in principle over Tuesday’s memorandum of understanding between Greece and its lenders, the European Commission (EC), the European Central Bank (ECB), the European Stability Mechanism, and the International Monetary Fund (IMF). Friday morning, after an all-night debate, 222 out of 300 members of the Greek Parliament (MPs) reluctantly approved numerous additional austerity measures and reforms required in return for up to €86 billion in new loans. The new loan program still requires the approval of several more national parliaments, including Germany’s, but that is expected by Wednesday evening, which would allow the first part of a €26-billion tranche to be disbursed on Thursday.
There is limited satisfaction with the agreement, aside from EC and Eurogroup leaders. Many focus on its shortcomings: everyone from the Greek prime minister and his coalition government to the opposition, average Greeks, an international group of economists who do not believe it will help solve Greece’s problems, and many Germans who do not want to commit to new loans to Greece. Still, with no one offering a more viable plan with the official sanction of Greece’s creditors, its banks in dire need of recapitalization even after seven weeks of capital controls, and over €3 billion due to the ECB on August 20, many argue that Greece had no choice but to agree to the 57 measures in the 400 pages of legislation passed Friday (in addition to over 900 pages’ worth in recent weeks).
The agreement is based on the assumption that the Greek economy will continue to contract this year and next, but will return to 2.7 percent growth in 2017 — a forecast some economists call unrealistic. The IMF insists that debt relief be offered to make Greece’s debt sustainable, as it currently is not, at 177 percent of GDP last year; it will not agree to participate fully in the new program unless debt relief is provided. Germany both insists on IMF participation and resists debt relief, at least before the first review of Greece’s compliance with the new program. However, Eurogroup chair Jeroen Dijsselbloem is optimistic that a compromise will be reached so that the IMF can begin to participate fully in October.
The agreement between Greece and its creditors features many new austerity measures, including new and higher taxes (for example, on private schools, purchases on the Greek islands, shipping companies, diesel fuel, and farmers), an increase in the retirement age and a decrease in pensions, and other limitations on government spending. The agreement also requires many major reforms, including a more effective fight against corruption, speeded up privatization of major assets and a special fund for earnings, deregulation of the energy market, an end to restrictions on “closed” professions, market liberalizations (regarding bread, milk, nonprescription drugs, and pharmacies, among others), and changes in labor laws, public administration, the judicial system, welfare, health care, banking, foreclosure law, and tax collection.
Greece must attain creditors’ approval of all measures that could affect anything in the agreement, including banking regulations, and submit to quarterly progress reviews and timelines for new actions presented by creditors, who can refuse additional disbursements if they are dissatisfied with Greeks’ progress. Greece is supposed to achieve a primary surplus of 0.25, 0.5, 1.75 and 3.5 percent between 2015 and 2018.
During Friday’s vote on the agreement with lenders, Prime Minister Alexis Tsipras lost the support of about a third of his SYRIZA party’s MPs — even more than in the last contentious vote. This brought his support level below the constitutionally mandated minimum of 120 MPs from his governing coalition of SYRIZA and the right-wing nationalist party Independent Greeks (ANEL). He is reportedly planning to call for a vote of confidence in parliament after the August 20 ECB repayment date. Especially if he loses that vote — as he may, lacking the support of opposition party members who voted for Friday’s agreement — new national elections are likely, possibly as early as next month.
The name of the major partner in the governing coalition, SYRIZA, is an acronym for “Coalition of the Radical Left,” but those terms have recently come into question: the coalition has been unraveling in a debate over whether radical leftists can support an agreement that includes so many austerity measures and reforms likely to negatively impact working people and pensioners. In two acts of open rebellion by SYRIZA MPs, speaker of Parliament Zoe Konstantopoulou delayed the beginning of the debate and vote on the latest agreement, and former Energy Minister Panayiotis Lafazanis, the head of SYRIZA’s Left Platform, signed a statement, along with 11 other SYRIZA members, about plans to create a new anti-bailout movement.
As Nikos Konstandaras emphasizes in “New Greek Bailout, Same Old Woes,” the capital controls imposed after Prime Minister Tsipras announced a referendum at the end of June have created serious difficulties for businesses, especially those dependent on imported materials, who managed to import only half as much in July as they did a year before. Small manufacturers and businesspeople lost about half their income. According to Bloomberg, capital controls reduced consumption by half, and they are expected to cost the Greek economy 4 to 10 billion euros this year. Since banks reopened July 20, businesses have been required to request permission for international money transfers, applying to banks for those under €150,000, and to a special Finance Ministry committee for higher amounts.
Now farmers are concerned that many of the measures approved by parliament on Friday will make it harder for them to survive financially. Farmer, producer, and exporter Stratis Camatsos, founder of εvo3 in Lesbos, told Olive Oil Times, “I believe the measures being discussed will be harmful for the olive oil industry, especially farmers and producers,” since taxes on farmers will increase from 13 percent to 26 percent, while the “VAT for agricultural supplies will increase to 23 percent from 13 percent, and a fuel tax benefit will be lost.” Camatsos points out that this is especially hard on small-scale Greek olive farmers. He continues, “This will also have a trickle-down effect on exporters as costs will increase, exporters will have to make a decision to either knock-on the costs to the consumer or bear the costs themselves…reducing razor thin profit margins even more. I believe that most exporters will bear the costs themselves as they cannot afford to not be competitive in the market — but we will see more companies and brands slowly exiting the market as they will not be able to survive.”
Camatsos does not completely disagree with those who argue that the new agreement has a number of potential benefits. He admits, “accepting the bailout agreement as a whole will help stabilize the industry and Greece’s economy and re-establish the trust factor between the olive oil industry and customers which is so delicate yet so important.” Argyris Bouras, an exporter and owner of Eleones Hellenic Olive Products, told Olive Oil Times he is “optimistic that in the long run the current developments will help the olive oil industry” since he thinks many unemployed Greeks will consider olive oil an obvious way to turn, “because everybody in this country knows someone or has a relative that produces olives or olive oil.” He expects some of those people to bring “substantial experience in marketing or other trades” to the business, as well as a willingness to take risks, so that those who succeed could bring something new to the Greek olive oil world. In addition, Bouras believes that the new taxes on farmers will reduce fraudulent claims of eligibility for farmers’ benefits, fraudulent use of diesel fuel intended for rural use, and under-the-table tax-evading transactions, leaving a fairer playing field for those who play by the book and pay all their taxes. He believes that with wise decisions and good management, farmers will be able to survive.
Bouras reminds foreigners that “Greece is a paradise for high quality unique products,” including some hidden treasures that require discovery. Camatsos urges anyone considering buying Greek olive oil, “Buy and support it. You can be sure that if you are buying Greek olive oil, you are truly supporting the Greek economy.”