Illustration: Luo Xuan/GT

While the risk of a euro-area exit has waned, it might be weeks to months before a third bailout can be finalized for Greece. A few stages of negotiations and approvals remain, and any of them could still lead to delays and even failure. With so many actors at the table, the process could be derailed at any time, possibly over the question of debt relief. Yet the political will to help Greece remains strong and we expect a new bailout program.

Negotiations for a third bailout have finally started, now that national governments have given their consent and Greek lawmakers have passed the measures required by creditors to move forward. Greece's parliament voted through a first round of legislation last month and has now passed an overhaul of the judicial system and a translation of the European Bank and Recovery and Resolution Directive into law. Both votes showed there is a broad political consensus to implement the promises made to creditors.

The preliminary agreement reached in the early morning of July 13 needs to be shaped into an actual deal. While there's already an outline of a third bailout, details about Greece's financing needs and sources are still missing, and debt sustainability still needs to be addressed. Potential for debt relief also remains a sticking point. As European Central Bank President Mario Draghi said during his July 16 press conference: "It's uncontroversial that debt relief is necessary... The issue is: What is the best form of debt relief within our framework, within our legal, institutional framework?"

With the majority of Greek public debt held by official creditors, there might be too many political and legal constraints for a haircut. One workable solution to get around them while bringing Greece's public debt back onto a sustainable path is to dramatically extend the grace period of debt repayment - possibly beyond 30 years and for the entire debt stock, as recently suggested by economists at the IMF.

Still, any debt relief is likely to happen only once the third bailout is signed. The July 12 Euro Summit statement said that "the Eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level," adding that "these measures will be conditional upon full implementation of the measures to be agreed in a possible new program and will be considered after the first positive completion of a review." German Chancellor Angela Merkel repeated this position, adding clearly: "Not now, but then." The IMF could disagree with that, though the degree of its involvement in a third bailout will also need to be specified.

Debt relief or not, if a deal is reached it will have to be validated by all creditors, notably the other 18 euro-area members. This will take time, with several national parliaments having to give their approval while currently in recess. The hopes for a quick finalization of a Greek deal were already dashed on July 13 by Eurogroup Chairman Jeroen Dijsselbloem when he said: "We are talking about designing a completely new program for three years that will involve a lot more in terms of substance and commitments and financing needs, and it will take time to negotiate that... Probably it will be closer to four weeks than two weeks."

Assuming all goes well, that would bring us to mid-August. It could go beyond that if negotiations prove more difficult than expected - for example, because a euro-area member fails to get legislative backing at home. Yet "Grexit" remains a distant possibility even in this scenario. The political signal sent after the July 12 meeting was a strong one: Greece belongs in the euro area. Any derailment in talks would probably bring leaders back to the negotiation table. The next big money deadline is August 20 when Greece has to repay 3.2 billion euros in bonds to the ECB. Creditors will probably aim for the bailout to be in place by then to allow Greece to repay the central bank on time. But even if negotiations slip, Europe can always get creative again to find bridge financing.

The shaky political situation in Greece is still a risk, although the situation should remain stable for at least a few months. Prime Minister Alexis Tsipras lost his absolute majority in parliament and had to reshuffle his cabinet to contain a growing rebellion in his Syriza party.

His failure to secure a better deal for Greece following the referendum weakened his democratic mandate. One way to restore it would be to call fresh elections. A new vote in any case is unlikely to happen before a third bailout is in place, and even then Tsipras could well stay in power.

The author is a Bloomberg economist. bizopinion@globaltimes.com.cn