Lenders to Greece: Show Us You Mean It

Tsipras needs to actually pass legislation, not just propose reforms.


Greek Prime Minister Alexis Tsipras

The proposed reforms delivered by Greece's new finance minister to negotiators from the International Monetary Fund (IMF), European Central Bank (ECB), and Eurozone leaders on Thursday was an almost total caving in of the country's position—or so it was widely reported.

Indeed, the new proposal looks strikingly like the terms Greek voters rejected at Prime Minister Alexis Tsipras' urging in a dramatic referendum last Sunday. It includes tax hikes, a pension overhaul, the privatization of state assets, and efforts to combat corruption—all things that Germany and the rest of Greece's creditors, which hold some 300 billion euros of the nation's debt, had been asking for before they would offer further financial assistance.

So in that sense, the last few days' reporting was correct—the Greek prime minister is offering to give the international community almost everything it wants in exchange for another bailout worth somewhere between 53.5 billion and 80 billion euros.

But an open question was whether the Greek government could be counted on to actually implement the changes it's promising to make. Does Greece have the political will to put its pledges into action?

"My biggest concern is whether all these plans will actually be carried out, as some of them (such as privatization) go against the ideology of Syriza," says Scott Sumner, director of the Program on Monetary Policy at the Mercatus Center, referring to Tsipras' far-left Syriza Party, which came to power in January.

The fear is understandable.

After all, Tsipras said more than four months ago that Greece would present lenders with an acceptable list of reforms. That never happened. The prime minister's decision to ignore an IMF deadline (thus allowing his country to become the first developed nation to default on a payment to that instutition), call a shock referendum, and encourage the Greek people to vote down the lenders' demands did not help to instill trust in the people he needs to get on board with his new proposal.

Speaking to the press, German Chanellor Angela Merkel earlier today said coming to an agreement to unlock another bailout (and keep Greece in the currency union) would be "extremely difficult." According to CNBC, she added that the "most important currency with Greece has vanished, which is trust."

"The issue of credibility and trust was discussed," echoed Eurogroup leader Jeroen Dijsselbloem, commenting on yesterday's meetings.

But the organizations seem to have come up with a solution to the challenge of not fully believing that Tsipras and the Greek people will stand for all the changes they're promising to make: force them to pass laws implementing the reforms right away.

The Greek Reporter outlined the Eurogroup's demands as follows:

Eurozone finance ministers decided that Greece must legislate a series of reforms within the next few days in order to continue negotiations for a third bailout package the country has requested from the European Stability Mechanism.

According to comments by top European officials after the end of the Eurogroup meeting, Greece must show willingness to reform and gain the trust of its partners that has been damaged in the past five months.

The measures and reforms should be implemented in two waves…

Tsipras has until Wednesday to get it done, according to Reuters. "For us the most important thing is that…this whole package has to be approved by both the Greek government and the Greek parliament," said Finnish Finance Minister Alexander Stubb, "and then we'll have a look."