With a spoonful of financial relief, Greece to reopen banks next week

With Greece edging close to economic collapse, European authorities took small steps toward giving the country some immediate financial relief Thursday after Athens bowed to their demands and approved a stinging package of austerity cuts and economic reforms.

The European Central Bank said it would pump more emergency funds into Greece’s teetering banks to keep them from running out of cash. Though the nearly $1 billion infusion will not be enough for normal operations to resume, the Greek finance ministry said banks would reopen Monday for limited transactions after being closed for three weeks.

Customers will still be restricted, in effect, to cash withdrawals of 60 euros (about $65) a day.

Separately, Eurozone finance ministers were homing in on a way to rush $8 billion in loans to the Greek government to ensure that it pays some urgent debts next week and does not tumble into a messy default. The ministers also announced that they had agreed in principle to launch talks with Greek officials on a third international bailout lasting three years and worth up to $94 billion.

The various moves came just hours after the passage early Thursday of an omnibus reform bill in the Greek Parliament that will raise taxes, cut pensions and impose yet more austerity on the beleaguered Mediterranean nation.

European leaders had refused to lend any more money to Athens unless it complied with their demands to further reduce public spending and streamline its economy. Faced with little choice, Greek Prime Minister Alexis Tsipras agreed to the deal to prevent his country’s ejection from the group of 19 nations that use the euro.

Such an exit would likely have propelled Greece toward a financial meltdown.

But the deal has come at a steep political price. Tsipras lost the backing of nearly a third of his left-wing Syriza party’s members of Parliament, who refused to endorse measures that they said humiliated Greece and went against everything they stood for.

On Thursday, Tsipras mulled his options for shoring up his 6-month-old government, including a reshuffle of his Cabinet or possibly a new coalition drawing on all the mainstream parties.

Interior Minister Nikos Voutsis told Greek radio that new elections were “very likely” by September or October, auguring a period of instability that would raise fresh doubts among Greece’s creditors about its ability to implement unpopular reforms in exchange for rescue loans.

Athens has already been the recipient of two international bailouts totaling about $261 billion at today’s exchange rate. Many of the provisions of those bailouts, such as the liberalization of various sectors of the economy, were never fulfilled, even as the country sank into depression and joblessness soared as a result of multiple rounds of austerity cuts.

Already reeling, the Greek economy is being strangled further by the closure of its banks, which the government ordered to prevent a run on their dwindling supply of euros. Ordinary business has ground to a halt, and shortages of fuel and medicines have been reported.

The decision Thursday by the European Central Bank to expand its emergency lifeline to Greece’s banks will provide a bit of breathing room.

Mario Draghi, the head of the central bank, revealed just how much money had fled the system as anxious customers rushed to pull out their funds during the uncertainty of the last six months. In January, the month Syriza took power, customers withdrew $14.5 billion; last month, as negotiations began to break down between Athens and its European creditors, raising the specter of a Greek exit from the euro, the amount was nearly $9 billion.

Draghi said that with all the money poured into propping up the financial system, the European Central Bank had become Greece’s biggest depositor.

He also waded into the increasingly contentious discussion over whether Greece’s creditors ought to do something to help Athens pare down its gargantuan pile of public debt, which exceeds $300 billion. Greek officials -- as well as many economists, the United States and the International Monetary Fund -- argue that a return to growth is impossible under such a debt load, but countries such as Germany have been fiercely opposed to any debt writedown.

“It’s uncontroversial that debt relief is necessary. I think nobody has disputed that,” Draghi said. “The issue is what is the best form of debt relief within ... our legal institutional framework?”

German Finance Minister Wolfgang Schaeuble, who has taken a hard line on Greece, said in a radio interview that Eurozone rules did not allow for debt forgiveness.

“We will open negotiations, we will make every effort, but we must keep to the rules because Europe is based on the principles of democracy and the rule of law,” he said.

Schaeuble shocked many last weekend by proposing that Athens take a “timeout” from the euro, a move that critics say would spark financial upheaval in Greece and undermine the credibility of the euro as a durable single currency. He repeated the idea Thursday, saying “it would perhaps be a better way for Greece,” reinforcing widely held suspicions in Athens that Germany is intent on forcing it out of the Eurozone.

On Friday, the German parliament is due to vote on whether to approve the opening of negotiations between Athens and its Eurozone partners on a new bailout. Despite the opposition of a number of German lawmakers to lending Greece more money, approval is expected with Chancellor Angela Merkel’s backing.

A committee of lawmakers in Finland, also a country where many are hostile to another Greek bailout, gave their blessing to negotiations Thursday.

Special correspondent Dody Tsiantar in Athens contributed to this report.

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