ECB Weighs Emergency Funding After Tsipras Wins Greece Bailout Vote

by Eleni ChrepaNikos ChrysolorasMatthew Campbell

July 16, 2015 — 1:55 AM EEST Updated on July 16, 2015 — 10:13 AM EEST

Bloomberg

Greek lawmakers passed a bailout agreement that keeps the country in the euro for now, shifting attention to the European Central Bank as it weighs whether to pump more money into the country’s hobbled financial system.

After more than four hours of debate stretching into the early hours of Thursday, 229 members of the 300-seat parliament in Athens approved new austerity measures that are a precondition of as much as 86 billion euros ($94 billion) in aid. Among those who opposed the bill were 32 members of Prime Minister Alexis Tsipras’s Coalition of the Radical Left, or Syriza, a sign the premier may have lost his majority.

The vote puts the onus on the ECB and other euro-region governments to deploy more emergency funds that would help Greek banks gradually re-open and repair the country’s battered coffers. The ECB’s Governing Council meets in Frankfurt later on Thursday and Germany’s parliament will vote Friday on whether to start bailout negotiations to help Greece cover its debts and pay pensions and salaries.

Accepting the agreement with creditors “was a decision which will be a burden for me for the rest of my life,” Finance Minister Euclid Tsakalotos told lawmakers at the start of the debate. “I don’t know if we did the right thing. But I know we did something to which there was no alternative.”

Bridge Financing

European and U.S. equity-index futures followed Asian stocks higher, while the euro slipped 0.1 percent to $1.0941 as of 8:53 a.m. in Frankfurt.

German Finance Minister Wolfgang Schaeuble said the vote was a “step further forward,” though reiterated his view that a temporary exit from the 19-nation euro region may be “the better way” since it would allow the debt forgiveness which is necessary yet banned under euro rules.

“I don’t know if we did the right thing. But I know we did something to which there was no alternative”

Given Greek financing needs, “we’ll see in the negotiations if there’s even a way to arrive at a program,” he said in an interview on Deutschlandfunk radio. “I don’t know, nobody knows at the moment how this is supposed to work without a haircut and everybody knows that a haircut is incompatible with euro membership.”

Finding a way to open banks and allow normal commerce to resume will be the Greek government’s first priority. In its Thursday meeting, the ECB will discuss whether to increase the level of so-called emergency liquidity assistance it provides to Greek lenders, which have been shut for more than two weeks to stem withdrawals.

Bridge Financing

Greece also needs to secure bridge financing to cover immediate needs that include making a 3.5 billion-euro payment to the ECB due on July 20. The European Union has proposed a facility worth 7 billion euros to tide the country over until implementation of the full bailout begins. Euro-area finance ministers are due to hold a conference call on Greece on Thursday morning.

Europe’s most indebted country came closer than ever to being forced out of the single currency this month after Tsipras stunned European leaders by calling a snap referendum on spending cuts and tax rises demanded by creditors. Despite a clear majority of Greeks voting “no,” he was forced to capitulate to an even more onerous package that political chiefs said was the only way for Greece to remain in the euro.

Yanis Varoufakis, the former finance minister who clashed repeatedly with Schaeuble, was among 38 members of Syriza’s 149-member parliamentary caucus who either voted “no” or abstained.

The vote outcome “constitutes a serious division of Syriza,” Greek government spokesman Gabriel Sakellaridis said in a statement. Tsipras’s priority now is to conclude an agreement with Greece’s creditors, he said.

The level of opposition suggests Tsipras may be forced to rule with a minority government, relying on opposition lawmakers to pass legislation, or co-opt the opposition into a government of national unity.

“A minority administration will prove unsustainable, making a national unity government likely,” Eurasia Group analyst Mujtaba Rahman said in a note to clients. Such a government, comprising all the major parties, “may prove to be the only way possible” to secure bailout funds, Rahman said.

As debate began on the bailout bill, police fired tear gas outside parliament to disperse anti-austerity protesters, highlighting the challenges Tsipras faces selling further spending cuts to a country already deep in recession. About 13,000 people gathered to protest in central Athens, police spokesman Takis Papapetropoulos said, although by about 9:45 p.m. most had been dispersed by riot officers.

Tsipras, who was elected in January pledging to end austerity and forge a new deal with creditors, didn’t rise to speak in support of the bailout bill in parliament until the early hours of Thursday morning.

“I had a choice of a deal I did not agree with, or a disorderly default, or Schaeuble’s choice of a euro exit,” Tsipras said. “I’m the last person to beautify an agreement with which I disagree in many of its points.”