Thursday, July 16, 2015

Greece Braces for Political Shake-up After Austerity Vote
By Michael Birnbaum and Griff Witte
Washington Post
July 16 at 9:53 AM  

ATHENS — Greece braced for a political shake-up Thursday after lawmakers approved a new era of austerity, a bitter turnabout that split the ruling party and spelled fresh economic pain for many in this struggling nation.

Greece’s retreat, however, was met with relief by its European partners who hold all the levers to the rescue package.

Greek banks — closed two weeks ago — received an expanded financial cushion that could allow them to reopen. European leaders also opened talks on the main package of up to $96 billion, Greece’s third bailout in five years.

But the internal political fallout in Greece was just beginning.

Prime Minister Alexis Tsipras was expected to purge his inner circle of dissenters after he was forced to push for the very belt-tightening policies he once campaigned against. He said that without the about-face, his nation would have been doomed to a humanitarian catastrophe.

In a potent sign the crisis was easing, the European Central Bank offered an addition $980 million in aid to Greek banks over the next week. That raised the possibility they may start to reopen. But the amount is not likely enough to fully ease the strict limits on withdrawals that have further strangled Greece’s economy.

ECB President Mario Draghi said he expected Greece would receive the emergency aid it needed to make a $3.8 billion debt payment on Monday. Missing the payment could have triggered Greece’s eventual ejection from the euro currency union.

“Our mandate is to act based on the assumption that Greece is and will be a member of the euro area,” Draghi said.

The International Monetary Fund has warned that it still views Greece’s mountain of debt as unsustainable, a position that put it at odds with Greece’s other creditors and complicated the bargaining for fresh help.

But lawmakers in Germany, one of Greece’s toughest critics, sounded newly optimistic that they would approve the bailout in a Friday vote, one more milestone on the route to a rescue.

European financial markets were boosted on the hopes of way forward for the Greek crisis. Several key stock markets were up by more than 1 percent. Wall Street opened higher.

Ahead of the vote, which came in the wee hours Thursday morning, Greek leaders waged an awkward fight. They urged approval of further cost-cutting measures — sometimes with openly tepid support — they once rallied against and acknowledged that they may send their country into deeper recession.

In a display of Tsipras’s new weakness, 40 of the 149 lawmakers from his Syriza party abandoned him, saying their nation was taking more of the same toxic medicine that had forced it into five years of penury.

Greeks “can understand the difference between those who fight with their soul in battle and resist, and those who hand in their weapons and give up with no resistance,” Tsipras told lawmakers in a speech capping the contentious late-night debate. “The outcome of these negotiations is of course not what we wanted.”

The decision was a stunning defeat for populist forces that have pushed for a break from years of grinding cuts demanded by powerhouse economies led by Germany.

In Berlin, Treasury Secretary Jack Lew met with German Finance Minister Wolfgang Schäuble on Thursday, part of a U.S. effort to keep Greece in the euro zone.

Schäuble has been one of Greece’s harshest critics, saying Thursday on Deutschland radio that he still believed that a temporary exit from the euro “might be the better path for Greece” if it enabled a large-scale write-off of the nation’s debts.

In Athens, Tsipras faced hard choices over the mutiny from one-time allies.

The defectors included several members of Tsipras’s cabinet. Among the outcomes from the split could be the fall of Tsipras’s government and possible new elections — with all the fresh complications they could bring if anti-bailout forces gain ground.

Greece’s interior minister, Nikos Voutsis, predicted elections could as held as early as September “depending on developments.”

At a minimum, Tsipras will be tasked with implementing unpopular measures with a greatly weakened base of support. In the end, 229 of the 300 members of the Parliament supported the bailout laws, but much of the support came from opposition parties.

As lawmakers hurled insults at one another ahead of the vote, anti-austerity protesters and riot police traded molotov cocktails and tear gas outside Greece’s neoclassical Parliament building.

Such clashes were a regular feature of anti-austerity demonstrations during the early years of Greece’s debt crisis. But recently they have been rare, and this was the first of any significance since Syriza came to power in January.

There was powerful symbolism in the half-hour burst of violence. Tsipras and his partners — who not long ago were manning the barricades against the authorities — now overseeing the crackdown on their anti-austerity base.

Thursday’s vote capped weeks of turmoil that started when Tsipras walked away from bailout negotiations late last month and called a snap referendum that handed the choice of austerity to the Greek people.

The decision sparked a bank run, shuttered banks and ushered in a new cash-poor reality after limits of 60 euros, about $67, were imposed on daily ATM withdrawals. Greeks rejected the austerity demands by a landslide, but Europe refused to budge. Tsipras had to capitulate or be kicked off the euro. His surrender was the culmination of a 17-hour slugfest that ended early Monday morning.

Yanis Varoufakis, who stepped down as finance minister last week, threw his lot with the dissenters.

How can I possibly vote ‘yes’ to monsters and the new Versailles Treaty?” he said in reference to the peace accord that ended World War I and imposed harsh terms on the losers.

Michael Birnbaum is The Post’s Moscow bureau chief. He previously served as the Berlin correspondent and an education reporter.

Griff Witte is The Post’s London bureau chief. He previously served as the paper’s deputy foreign editor and as the bureau chief in Kabul, Islamabad and Jerusalem.

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