Greek Deal Done: Will Tsipiras Lose His Job?


"22 hours and all I got was this lousy deal!" That's the tee shirt that Greek Prime Minister Alexis Tsipiras will likely have to wear, when he heads back to Greece and tries to convince the Greek Parliament to approve a three-year, €82-86 billion bailout deal ($91 billion to $96 billion). While the 22-hour marathon negotiation allows Greece to remain in the common currency zone, it does so at a steep price. Price tag = €82-86 billion: The first thing to note about the deal is that it is larger than the €53.5 billion the Greeks had requested and the reason is clear: In the past month, while Tsipiras was messing around with trips to Russia and a snap referendum, the Greek economy ground to a halt, further crippling commerce. The upshot is the Europeans believed that the Greece asked for too little in its third bailout request.

Austerity: Greece will immediately implement tax increases, tough pension reforms and privatization of certain industries, like energy transmission. Additionally, Greece agreed to changes in labor laws and administrative overhauls.

New €50 Independent Fund: Greece will transfer €50B of state-owned assets into a fund, which will be sold off or wound down to help pay down the country’s debt over the coming years. Because there is no trust in the Greeks, the Europeans will supervise the fund.

U-Turn on Greek Legislation: When Tsipiras came into office at the beginning of the year, he enacted legislation that tried to ease up on austerity, including rehiring of some laid off public employees. The new bailout requires that Greece undo those measures.

IMF IN: Greece asked for the IMF to be excluded from a deal, but the Europeans liked the concept of an adult in the room, so the IMF will continue to monitor the Greek’s adherence to its bailout commitments.

Greek Banks: The Europeans will earmark €10 - 25 billion to recapitalize the banking system, though it is unclear when the banks will be able to reopen.

Re-Profiling debt: Europe will not write down Greece's existing debt, but will consider "re-profiling" it, which essentially means that after Greece passes its first review, the Euro group might potentially elongate the terms and reduce the interest rates applied to various loans.

Deadline: The Europeans said that the Greek Parliament has until Wednesday to approve the deal, which could mean that Tsipiras will have to cozy up to become "frenemies" with some right wing legislators.

Tsipiras Out?: The parliamentary process could  trigger fresh elections and Mr. Tsipiras could find himself not only as the architect of a lousy deal, but an unemployed one as well.

BOTTOM LINE: Although the Europeans may have won the battle, they will likely lose the war. Yes, Greece will remain in the Euro zone, but the deal just kicks the can down the road. Without a significant write-down of the now more than $350 billion in debt, the Europeans are unlikely to see total repayment and Greece may ultimately have to leave the Euro zone. For the Greek citizens, this lousy deal will amount to even more suffering.