Europe

Third Greece bailout: What are eurozone conditions?

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Media caption"You with your vote will judge us," PM Alexis Tsipras tells the Greek people in a TV broadcast

Greece is now receiving much-needed funding from a third eurozone bailout - worth about €85bn (£61bn; $95bn).

As in the previous bailouts, Greece's EU partners set tough conditions, demanding more austerity.

But there is political uncertainty again, after Prime Minister Alexis Tsipras called a snap election, because MPs rebelled inside his Syriza party. Twenty-five members broke away to form a new left-wing party, Popular Unity, opposed to the bailout.

The lenders are anxious to ensure there is no backtracking on the reforms that Greece must fulfil under the Memorandum of Understanding (MoU) - the official name for the bailout.

Syriza was elected in January on an anti-austerity platform. But Mr Tsipras agreed to the lenders' demands as the price for keeping Greece in the euro.


What are the immediate priorities?

The MoU demands "prior actions" which Greek MPs must make law immediately.

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Image caption Hard times for pensioners: There were big queues outside Greek banks last month

The prior actions are aimed at boosting budget revenue and call on the government to:

  • End fuel tax benefits for farmers
  • Phase out VAT (sales tax) discounts applied on Greek islands, so that they disappear fully by the end of 2016
  • Scrap a range of exemptions and amnesties applied in tax collection
  • Clarify who is eligible for the minimum guaranteed pension at age 67 and start phasing out most early retirement. By 2022 at the latest the statutory retirement age will be 67
  • Reinstate key reforms in the healthcare system, including: scrapping price controls for medicines; increasing centralised procurement of hospital supplies
  • Overhaul social welfare, to achieve annual savings of 0.5% of GDP (total national output)
  • Move to tackle the problem of non-performing loans, including amending laws on insolvency
  • Open up restricted professions, including solicitors, actuaries, bailiffs
  • Deregulate the natural gas market
  • Relaunch privatisation, including plans to sell port facilities in Piraeus and Thessaloniki and regional airports - a special asset management fund will be set up
  • Reduce travel allowances and perks for state administration staff, aligning them with EU best practice

What are the key economic targets?

The bailout aims to: put privatisation back on track, modernise and slim down the state administration, tackle tax evasion and fraud, open up regulated professions to competition, and cut pension costs to make the welfare system sustainable.

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Image caption Beach at Paralia: Despite all the gloom Greece is having a good tourist season this summer

It is a three-year bailout programme (2015-2018), to be provided in instalments by the EU's main bailout fund, the European Stability Mechanism (ESM). It is based on an outline agreement reached at a special EU summit on 13 July.

The wide-ranging MoU sets deadlines for the many economic reforms required. At every stage the Greek government will have to consult closely with the lenders.

The MoU recognises "the need for social justice", so that "the burden of adjustment is borne by all parts of society". However, it does not offer debt relief - despite Syriza's argument that Greece's crippling debts are unsustainable.

There will be no discussion of debt relief until after the lenders' first review in October.

The Greek government is required to achieve a primary budget surplus (a surplus minus interest payments) of 3.5% of GDP by 2018. The targets to reach that are: a 0.25% deficit this year, 0.5% surplus in 2016 and 1.75% surplus in 2017.

Those targets are tough - but not as tough as originally envisaged, because the Greek economy is expected to shrink by 2.3% this year. It has spent most of the past seven years in recession.

Greek economy returns to growth


What about the banks?

Greece's banks remain in a fragile state - they depend on emergency ECB funding and cannot borrow in capital markets.

Strict capital controls remain in force - Greeks are limited to withdrawing €420 a week from their accounts.

The banks were closed for three weeks in June-July, to prevent a bank run by anxious customers, who feared economic meltdown and "Grexit" - exit from the euro. The controls put a severe brake on economic activity.

Under the new bailout terms, Greek banks are getting €10bn, aimed at recapitalising them by the end of the year.

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