What could possibly go wrong? Greece begins its path towards implementing Euro Summit agreement

We noted last week that reaching an agreement was the easy part. How Greece plans to implement near impossible reforms remains to be seen. Once again the hard part begins this week and when Greeks return from their summer holidays in September, expect mass protests, strikes, demonstrations, fires and all kinds of hell to break loose.

The Greek drama is just beginning.

Via Bloomberg…

Participants in the Greek saga have seen more than their share of false dawns and broken promises since the crisis broke out under Prime Minister George Papandreou in late 2009. If history is a guide, here is a list of all the things that could go wrong with Greece’s third bailout.

Greece needs cash now. It owes the European Central Bank about 7 billion euros ($7 billion) before the end of August and is in arrears to the International Monetary Fund by about $2 billion.

European finance ministers are discussing bridge financing to keep the country afloat until a final agreement is reached. That will involve more difficult negotiations: “It’s quite clear that it’s very difficult for any member states to put forward fresh money without any conditionality — basically money which would not even be a loan,” Finland’s Alexander Stubb says.

Monday’s agreement needs to pass at least seven other parliaments, where lawmakers are already skeptical about giving Greece more aid.

Germany’s Bundestag votes on Friday (assuming Greece passes it), while lawmakers in the Netherlands, Slovakia, Austria and Finland will also examine it.

Disagreements may resurface among the creditors too. The IMF will have to determine whether the country’s debt is sustainable before approving more loans.

The IMF’s insistence that Greece’s debt be made sustainable, possibly through a debt writedown that European governments reject, delayed the 2011 bailout agreement by several weeks and froze debt payments in 2012 for months.

Will the Bureaucrats Implement It?

Officials from the European Commission, the ECB and the IMF have blamed the failure of Greece’s two previous two bailouts on the inability of the country’s bureaucrats to carry out the political commitments.

Implementation may be even poorer now, since the government is led by a party that has opposed overhauls of social security, public administration, the tax system, judicial code, and sales taxes — all conditions demanded by creditors.

“Syriza’s raison d’etre has been against austerity and pro-market reforms, and for state expansion,” said Hari Tsoukas, professor of organizational studies at the U.K.’s Warwick Business School in Coventry. “How can its government own up to a program it has always protested against?”

Can Greece Really Sell $55 Billion of Assets?

Greece’s bailout requires it to sell up to 50 billion euros ($55 billion) of state assets. The problem is that Europe’s most indebted nation already tried that and failed.

After four years of efforts and five changes in government, Greece managed to muster only 3.5 billion euros of proceeds from privatizations.

Moreover, World Bank and World Economic Forum data show that Greece has one of Europe’s least attractive economies. Asset prices are depressed after the steepest recession in more than half-century, and it has failed to meet obligations to its creditors.

It is no wonder two international officials directly involved in the monitoring of Greece’s bailout program said the 50 billion euros target is “ambitious,” to say the least.

What happens when you ask a country sinking in a double-dip recession, with its banks closed and capital controls in place, to impose more austerity? Probably a deeper recession, making deficit and debt reduction targets even tougher to hit. It wouldn’t be a first for creditors to offer over-optimistic assumptions about Greece’s growth patterns.

The deteriorating economy “means that any present or future government will continue to face enormous resistance to the introduction of reforms in the short term,” Teneo Intelligence analysts Wolfango Piccoli and Carsten Nickel wrote in a note to clients on Monday. “As a result, building country ownership – probably the most important factor of success for program implementation – will remain challenging.”

Previous bailouts have been hobbled by political paralysis. Greece has had five prime ministers and eight finance ministers since the beginning of the crisis and political instability is already brewing again.

As many as 40 lawmakers in the so-called Left Platform of Syriza, along with the Independent Greeks party, are refusing to back the deal. While Tsipras enjoys the support of pro-European opposition parties, the loss of his base may lead to snap elections within the next few months.

“At a very minimum, there will be a government reshuffle,” Royal Bank of Scotland Group Plc analysts including Michael Michaelides wrote in a note to clients. “However this assumes that beyond the immediate legislative prerequisites that a Tsipras-led administration can continue to command a majority of MPs. This remains to be seen,” they wrote.

Protesters are flocking to the central square of Athens again. As the economic situation deteriorates and austerity bites, a return to 2012, when daily demonstrations and riots hurt tourism and halted economic activity in the capital may be at hand.

The most recent Greek surveys show that backing for staying in the euro “at all costs” is still supported by the majority of Greeks, but the appeal of membership is declining. A survey by pollster GPO last month showed that 56.2 percent of respondents preferred a “bad” deal with creditors than euro exit, while 35.4 percent said a return to the national currency would be preferable to more austerity. If public opinion swings against the euro, then there’s very little, if anything, any government can do to keep the country in.


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