Greece debt crisis: Humbled Athens starts delayed talks on bailout with hated 'troika'

When Syriza swept to power in January, finance minister Yanis Varoufakis – since sacked – said the new government was 'not going to co-operate with a rottenly constructed committee'

Greek flags for sale for one euro in Athens: capital controls are set to stay for months, while talks on a third bailout begin today (Reuters)

Greece will begin delayed negotiations over a third €85bn (£60bn) bailout on Tuesday, months after its left-wing leadership swore not to deal with the hated “troika” of its international creditors.

Senior members of prime minister Alexis Tsipras’s Syriza government will sit down with representatives of the European Commission, European Central Bank and International Monetary Fund in Athens, representing a dramatic capitulation after Greece was almost forced out of the eurozone two weeks ago.

Ravaged by five years of austerity, recession and soaring unemployment, Greece has long resented the troika – Russian for a group of three – as an invasion of its sovereignty. Immediately after Syriza swept to power in January, finance minister Yanis Varoufakis – since sacked – said the new government was “not going to co-operate with a rottenly constructed committee”. The troika was rebranded as the “institutions” and talks were held in Brussels rather than Athens.

Officials say “technical” talks on the latest bailout deal, delayed from last week, are now ready to begin following attempts to limit the movement of troika officials in Athens. Labour minister Giorgos Katrougalos said the form of the negotiations was “still being discussed” but confirmed that ministers including finance chief Euclid Tsakalotos were likely to meet directly with the inspectors. “At the point we have reached, we are obliged to negotiate … Faced with the prospect of financial collapse, we were forced to compromise,” Mr Katrougalos said.

The flood of deposits out of Greece’s crippled banking system forced Mr Tsipras to accept the terms of the nation’s creditors, although capital controls on Greece’s banks – limiting withdrawals to €420 a week – could be in place for “months”, according to officials. The banking turmoil has hammered an already weak economy and lenders are in urgent need of new funds, potentially from the European Stability Mechanism bailout pot. “Ultimately, you can only lift the capital controls when the banks are sufficiently capitalised,” Bundesbank chief Jens Weidmann said.

Former German finance minister Peer Steinbrück added in a weekend interview that “if we continue like this, there’ll be a fourth bailout”.

To gain the three-year bailout funds, Greece agreed to hike VAT and cut pensions as well as put measures in place to automatically cut spending if it fails to hit surplus targets. In the longer term the Government must also raise €50bn from privatisations and undertake reform of its labour market.

Mr Tsipras is relying on support from opposition parties to push through the measures after a rebellion within his party, opening up the prospect of more elections in the autumn.

The negotiations over the third bailout must be completed by 20 August, when Greece has to repay more than €3bn to the ECB.

The IMF’s latest review of the wider eurozone said the recovery was strengthening, but added that Greece remained a potential threat to the region’s prospects.

In a report published today its executive board said the eurozone was “vulnerable to negative shocks and prolonged low growth”.

It warned: “Although market reaction to the recent reform package passed in Greece has been broadly positive, further episodes of significant uncertainty and volatility arising from the situation cannot be ruled out.”