Euro

Juncker, left, with Greek prime minister Alexis Tsipras at last month's EU summit in Brussels

The Greek daily To Vima has a nice scoop this afternoon about a document they’ve been leaked purporting to be a new proposal from Jean-Claude Juncker, the president of the European Commission, on how to break the standoff between Athens and its creditors.

According to the To Vima report, the plan envisions a deal with Greece that completely cuts out the International Monetary Fund and releases about €5bn in aid to Athens from three different sources: the €1.8bn remaining in the EU’s portion of the current bailout; €1.9bn in profits from Greek bonds purchased by the European Central Bank back in 2010; and another €1.3bn or so in additional Greek bond profits the ECB will get in July.

In exchange, Greece would agree to adopt a relatively short list of economic reforms that are significantly narrower from those being sought by the IMF and a German-led group of hardliners within the eurozone.

The Commission’s spokeswoman responsible for economic issues, former Reuters correspondent Annika Briedthardt, has already distanced the Commission from the document, saying in a tweet that she’s not aware the proposal actually exists:

Other commission officials are similarly playing down its importance. “We have many documents,” said one, only half-jokingly.

Although nobody is admitting the provenance of the document, what it appears to be is one in a series of proposals going back and forth between the Commission and Athens in an effort to find common ground, rather than a full-blown “Juncker Plan” to cut the Gordian Knot. Read more

Group photo, distributed by the European Commission, of "sherpas" at last month's meeting

The agenda for next month’s EU summit has the potential to become very full very fast. European leaders are already facing a fraught decision over whether to extend economic sanctions against Russia, which expire in July.

Then there’s the ongoing Greek fiscal crisis, which could come to a head in June, when Athens’ current bailout ends. And now David Cameron, the rechristened UK prime minister, has signaled he will launch his renegotiation of Britain’s relationship with the EU at the same session.

Almost forgotten in this mix is eurozone leaders’ promise to revisit the future of their monetary union with a new “four presidents’ report” on how to fix the remaining shortcomings, due to be presented in June, too (the four presidents refer to the heads of the European Commission, European Council, European Central Bank and the eurogroup).

In preparation for that report, the so-called “sherpas” for all 28 EU leaders have been meeting periodically in Brussels under the chairmanship of Martin Selmayr, Jean-Claude Juncker’s influential chief of staff. Ahead of the last session on April 27, a summary of where the group stood was circulated to national capitals, and Brussels Blog obtained a copy.

As we reported in today’s dead-tree edition of the FT, the document contains no mention of changing EU treaties any time soon, which will disappoint Cameron, who has included treaty changes as a pillar of his renegotiation campaign. Indeed, the clearest thing to come out of the five-page “note for discussion by sherpas” is that there is not a huge amount of enthusiasm for doing much of anything. Read more

Dijsselbloem, left, and Sapin during a February eurogroup meeting in Brussels

Normally, it wouldn’t seem unusual for Jeroen Dijsselbloem, the Dutch finance minister, to be making the rounds to the eurozone’s major capitals. He is, after all, chairman of the eurogroup, the committee of 19 eurozone finance ministers that, among other things, is locked in a prolonged dispute over the Greek bailout.

In addition to Greece, Dijsselbloem has other things to discuss, including a report due in June from the so-called “four presidents” – Dijsselbloem, the ECB’s Mario Draghi, Jean-Claude Juncker at the European Commission, and Donald Tusk at the European Council – on the future of the monetary union.

But Dijsselbloem only has two months left on his term as eurogroup president, and the race between the centre-left Dutchman and his centre-right Spanish counterpart, Luis de Gindos, is beginning to heat up. So is the fact he is in Paris today to meet French political leaders, and in Berlin tomorrow, and Rome on Friday, a bit of a campaign swing as well?

If so, it got off to a good start. The FT’s woman in Paris, Anne-Sylvaine Chassany, went to a joint news conference between Dijsselbloem and his French counterpart Michel Sapin, and reports that the Frenchman was robust in his endorsement of the incumbent:

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Monday night’s live TV interview with Alexis Tsipras, the first since he became Greece’s prime minister, has generated headlines because of his declaration that, if the deal he ultimately strikes with eurozone creditors includes measures he promised to avoid, he’d put it up for a referendum.

But the three-hour-long session contained some other nuggets that illustrated anyone who thought Tsipras was going soft after reshuffling his bailout negotiating team on Monday morning may have miscalculated.

At the very top of the show, for instance, he accused Angela Merkel, the German chancellor, of “political weakness” for failing to admit the Greek bailout has been “a failure”.

For eurozone crisis obsessives, another exchange was particularly notable: Tsipras claimed that as part of the critical agreement on February 20 to extend Greece’s bailout through June, he received a verbal commitment that the European Central Bank would allow Athens to sell more short-term debt. Read more

Dijsselbloem, left, with Spanish rival de Guindos during a eurogroup meeting in December

The second quarter of 2015 will not only bring a crescendo in the ongoing Greek crisis for the 19 eurozone finance ministers who make up the eurogroup, which must ultimately decide whether Athens gets the bailout funds it needs to avoid bankruptcy. It will also trigger something nearly as closely-watched by EU insiders: an active race to head the group.

Jeroen Dijsselbloem, the Dutch finance minister who was the surprise pick to preside over the powerful committee when he was plucked from obscurity just weeks after national elections pushed his party into government in late 2012, will see his two-and-a-half year term end in July.

Unusually for such high-profile EU posts, both Dijsselbloem and his leading challenger, Spanish finance minister Luis de Guindos, have publicly declared their interest in the job. Indeed, de Guindos received a very public, full-throated endorsement from his prime minister, Mariano Rajoy, at last month’s EU summit in Brussels.

Although the politicking hasn’t really begun in earnest yet – the group is somewhat preoccupied with Greece at the moment – the Brussels Blog has talked to a handful of insiders to gauge where the race stands. Most believe it will come down to a political showdown between the EU’s two main pan-European party groups, the centre-right European People’s Party and the centre-left Party of European Socialists.

Here’s how most are handicapping it now – plus a few dark horses who could emerge if the two men cancel each other out. Read more

Prime Minister Alexis Tsipras at a cabinet meeting Sunday night in the Greek parliament

There has been lots of analysis on a new list of economic reforms that the Greek government sent to its bailout monitors over the weekend, including this incredibly comprehensive report from the Athens-based analytical website Macropolis.

But before everyone goes concluding that this is the final list that eurozone creditors will rule on, remember: nothing has been submitted yet to the eurogroup – the committee of 19 eurozone finance ministers that will ultimately rule on whether the reforms are sufficient to unlock the remaining €7.2bn in bailout funds Athens desperately needs.

And tonight’s “deadline” for bailout monitors to approve a submission, and then forward it onto the eurogroup, is nothing more than a self-imposed one; in reality, there is no deadline other than the date when Athens eventually runs out of cash.

People on both sides of the negotiations say that despite three days of talks, the list is not comprehensive as yet. “There was no such thing as an original list,” insists an official from one of the bailout monitoring institutions. “There were contributions, tables, pieces of paper.”

Indeed, on the Greek side, some involved in the discussions say a fuller, longer, and more detailed document is in the works. They argue the issue is not, as many among the bailout monitors claim, a lack of detail. The issue is getting all the details – some 72 reforms, according to one person in the Athens camp – into a well-organised document, in English, without mistakes in substance or politics. Read more

Tsipras, at right without tie, and Merkel, left in red, at Thursday's Greece discussion in Brussels

If you didn’t know what the standoff over Greece’s bailout was all about, Alexis Tsipras, the new Greek prime minister, has provided an excellent primer in a letter sent a week ago to his German counterpart, Chancellor Angela Merkel, who he is scheduled to meet Monday night in Berlin.

Our story about the March 15 letter, which the FT obtained a copy of, can be found here. But as is our normal practice, we thought we’d provide readers of the Brussels Blog a bit more detail – including a copy of the letter, which we’ve posted here.

It’s worth noting that eurozone officials say a similar letter was sent to a select group of other leaders, including François Hollande, the French president; Mario Draghi, the European Central Bank chief; and Jean-Claude Juncker, president of the European Commission.

For those who are having a hard time following every twist an turn in Tsipras’ dispute with his bailout lenders, the letter is filled with a lot of jargon and references to multiple previous exchanges of letters, which can be confusing even to a Greek crisis veteran. For that reason, below is an annotated version of the Tsipras letter, which is our modest attempt to explain its intricacies to the uninitiated.

The letter starts off by referring to a February 20 agreement by the eurogroup – the committee of all 19 eurozone finance ministers which is responsible for overseeing the EU’s portion of Greece’s €172bn bailout. That was the meeting where ministers ultimately agreed to extend the Greek bailout into June; it was originally to run out at the end of February, and the prospect of Greece going without an EU safety net had spurred massive withdrawals from Greek bank deposits, which many feared was the start of a bank run. Read more

Protesters outside the Greek finance ministry in Athens during a visit by the troika in 2013

Among the issues plaguing deliberations over the way forward on Greece’s bailout is how the country’s international creditors can verify its economic and fiscal situation without sending monitors to Athens– which would look very much like the return of the hated “troika”.

Alexis Tsipras, the new Greek prime minister, has declared the death of the troika – which is made up of the European Commission, European Central Bank and International Monetary Fund – but for now, the troika isn’t really dead. The re-branded “institutions” must still evaluate Greece’s reform programme and give it a signoff before any of the remaining €7.2bn in bailout can be disbursed.

But the new Greek government has resisted anyone from the “institutions” showing up in Athens; they were originally supposed to show up this week, but officials said Greek authorities blocked the visit. In a letter Thursday to Jeroen Dijsselbloem, the Dutch finance minister and eurogroup president, Yanis Varoufakis, the Greek finance minister, suggested an alternative to a return of “the institutions” to Athens: have them meet in Brussels instead. Wrote Varoufakis:

As for the location of the technical meetings and fact finding and fact-exchange sessions, the Greek government’s view is that they ought to take place in Brussels.

But Dijsselbloem’s response to Varoufakis on Friday, in a letter obtained by the Brussels Blog, suggests officials from the “institutions” may be showing up in Athens after all. Wrote Dijsselbloem: Read more

Dijsselbloem, left, speaks with Varoufakis during a finance ministers' meeting in February

During a 45-minute interview in his Dutch finance ministry office in The Hague, Jeroen Dijsselbloem, chairman of the eurogroup, offered up a detailed recounting of his month-long negotiations with Athens to secure last week’s agreement extending Greece’s €172bn bailout by four months – as well as his views of what might come next.

Portions of that interview have been be published on the Financial Times website here and here, but as is our normal practice at the Brussels Blog, we thought we’d offer up a more complete transcript of the interview since some of it – including previously undisclosed details about the three eurogroup meetings needed to reach a deal – was left on the cutting room floor and may be of interest to those following the Greek crisis closely. The transcript has been edited very slightly to eliminate cross-talk and shorten occasionally long-winded questions from the interviewer.

The interview started on Dijsselbloem’s decision to travel to Athens to meet Greek prime minister Alexis Tsipras just days after the January 25 elections – a visit that was overshadowed by a tension-filled press conference between Dijsselbloem and his Greek counterpart, Yanis Varoufakis, which spurred a market sell-off: Read more

Varoufakis (right) and Schäuble shake hands ahead of Wednesday night's eurogroup meeting

[UPDATE] In response to our post below, the Greek government this morning has denied it ever agreed to the text we got our hands on. “At no point in time did the Greek delegation give consent to the text that has been published,” said Nikos Pappas, the prime minister’s chief of staff. Our account is based on several sources from multiple delegations, so we stand by our story. However, Greek officials insist the text they agreed to Wednesday night was actually an earlier version than the final statement we published. These officials say the agreed draft was changed before it was to be issued at a late-night press conference by Jeroen Dijsselbloem, the eurogroup chairman, prompting their veto. The drama continues…

Wednesday night’s breakdown in talks between Greece and the other 18 eurozone finance ministers happened at such the last minute that many of the participants in the eurogroup meeting – including Wolfgang Schäuble, the powerful German finance minster – didn’t even know it had happened, since they had already left the building.

According to several officials involved in the talks, Yanis Varoufakis, the Greek finance minister, had agreed to a joint statement with his colleagues, a statement that was even signed off by Greece’s deputy prime minister, Yannis Dragasakis, who was also in Brussels for the gathering.

Once agreed, the eurogroup meeting broke up and Schäuble and several of his colleagues headed out the door. But officials said Varoufakis put in one last call back to Athens to inform them what he had just agreed to – and government officials vetoed the statement.

We at Brussels Blog got our hands on the statement and have posted it below. In many senses, it has a little bit for everyone. For eurozone officials, who were pushing Athens hard to request an extension of the current €172bn bailout, which expires at the end of the month, it leaves open the option to “explore the possibilities of extending” the programme.

For Varoufakis, there’s even the word “bridge” mentioned in the final paragraph – though not in the sense the Greek minister probably wanted, which is as part of a bridge financing deal. Read more

Finance minister Yanis Varoufakis speaks before the Greek parliament on Tuesday

One of the unmentioned problems looming over the current Greece standoff is the fact that Athens will need a third bailout, regardless of what happens in a week’s worth of Brussels meetings that start on Wednesday. Eurozone officials say that both Yanis Varoufakis, the new Greek finance minister, and his boss, Alexis Tsipras, have acknowledged that in private meetings.

Just four months ago, it appeared that Athens wouldn’t need another full-scale EU bailout and would be given a line of credit instead. That’s because at the time it appeared the Greek government was making progress in convincing private credit markets to fund its fiscal needs. That is no longer the case.

Eurozone officials are understandably reluctant to estimate the size of another Greek bailout – and not just for political reasons. Trying to guess how much Athens will need without digging through Greece’s books is a fraught affair, especially since tax revenues have reportedly begun to dry up and it’s been months since the troika did their last full-scale analysis.

But that shouldn’t prevent Brussels Blog from doing some spit-balling. According to a very quick-and-dirty back-of-the envelope estimate, a third Greek bailout could run as much as €37.8bn if Varoufakis’ plans are adopted in full. Are Greece’s 18 eurozone partners prepared to cough up that kind of money in the current environment? Read more

At a time when Mario Draghi’s style of running the European Central Bank is under question – there’s reportedly been grumbling he’s setting monetary policy in off-the-cuff public remarks rather than in consultation with the bank’s board members – it is easy to forget that Draghi’s most famous act as ECB chief was also an unscripted public utterance: “whatever it takes”.

The now-famous 2012 remark, which is widely credited with ending the hair-on-fire phase of the eurozone crisis by hinting the ECB would use its printing presses to buy up sovereign debt of besieged governments, has long been viewed as a masterstroke of market management, since the ECB has yet to spend a cent on such bond purchases.

But as the FT and other news organisations have reported, many on the ECB governing council were taken aback by the remarks because the issue wasn’t discussed more widely before Draghi declared it as ECB policy.

The Brussels Blog recently got its hands on yet more evidence that Draghi’s remarks – made at a conference in London in July 2012 – were inserted at the last minute without wider consultation: raw transcripts of discussions with Timothy Geithner, who was US treasury secretary at the time, about the eurozone crisis.

The 100 pages of transcripts we obtained are of interviews Geithner gave to assistants preparing his book, Stress Test: Reflections on Financial Crises, which was published in May. Many of the recollections also appear in the book, but Geithner provides more detail and more bluntness – including a fondness for the f-word – in the pages we obtained.

This is particularly the case for the “whatever it takes” speech. In his book, Geithner mentions the remark was impromptu. But in the transcript, Geithner reveals his source for that passage: Draghi himself, who told Geithner he had decided to insert the words into his address after meeting with London financiers who were convinced the eurozone was on the brink of implosion. Here’s the section of the transcript relating to Draghi’s speech: Read more

Moghadam, left, with his deputy director Poul Thomsen during a meeting in Brussels

As the eurozone crisis slowly fades into history, many of its most prominent players are moving on as well. On Wednesday, Reza Moghadam, head of the European department at the International Monetary Fund and arguably the fund’s most influential official during the crisis, announced his departure to take a top job at Morgan Stanley in London.

According to officials close to Moghadam, part of his reason for leaving is because he held several of the IMF’s most senior posts over his 22 year career and now could only move laterally to other director positions. In addition, those who have spoken to him said most of his family – including his mother and adult children – now live in the UK and he was eager to return to Britain after more than two decades in Washington.

“Leaving the fund has not been an easy decision and I go with a heavy heart,” Moghadam said in a statement released by the IMF. “But I look forward to a new chapter in my life and a new career, and to being back home in the UK with my family.”

At Morgan Stanley, Moghadam will be vice chairman of the global capital markets group, where he will continue to deal with public finance issues, including working with governments seeking advice on debt or fiscal issues. Because he’s moving into a private-sector job that overlaps with his current duties, he will give up his IMF responsibilities immediately and won’t begin his job in London until October or November. Read more

Van Rompuy meeting with Britain's David Cameron at Downing Street on Monday

The less-watched parallel process to selecting the new head of the European Commission has been Herman Van Rompuy’s effort, backed by several member states, to come up with a work programme for the new commission president that will lock him in for the next five years when it comes to policy programmes and priorities.

Even though advocates of such an idea appear to be pushing the same policies that are mentioned in nearly every EU summit communiqué, several countries – including strange bedfellows like the Netherlands and Italy – have argued such an agenda is in some ways more important than the leader who takes over the commission in November. They insist it will enable Europe’s prime ministers to put their stamp on the next commission and its priorities after the European Parliament was seen to have dragged the current one around.

As a first step towards agreeing such a programme, Van Rompuy, the outgoing European Council president, on Monday circulated a four-page “strategic agenda” for the new commission, which he hopes to get agreed at this week’s high-stakes EU summit. We wrote about it here, but as usual for readers of Brussels Blog, we’re providing a bit more detail for those more interested, including a copy of the document, which we’ve posted hereRead more

After months of speculation, official confirmation finally came on Friday that Ramon Fernandez, one of the central players in Brussels on the French side throughout eurozone crisis negotiations, will step down as head of the French Treasury at the end of June.

He will be replaced by Bruno Bézard, 51, currently director general of public finances at the finance ministry and a figure firmly in the tradition of French haut functionnaires: a graduate of both Ena and L’Ecole Polytechnique, the elite graduate schools, he was an economic adviser to former socialist prime minister Lionel Jospin and has headed the APE, the agency that holds most of the state’s big company shareholdings.

Fernandez, 46, an amiable figure who combines formidable technical skills with an impish sense of humour, found himself in an uncomfortable position after the election in 2012 of President François Hollande. Firmly identified with the centre-right, Fernandez was appointed in 2009 by former president Nicolas Sarkozy and was regarded with deep suspicion by many on the socialist left, notably the voluble Arnaud Montebourg, now economy and industry minister. The directeur du Trésor is a powerful position as the senior civil servant in the finance ministry empire. Read more

Are the Dutch attempting to lead a mutiny on bank reform? It is hard to tell whether the objections are serious enough to unravel the deal last week on the EU rules for handling a bank crisis. But something mildly rebellious is certainly afoot. And it could end in another golden-gloves showdown between Jeroen Dijsselbloem, the Dutch finance minister, and his Swedish sparring partner Anders Borg.

At issue is the draft deal on the bank recovery and resolution directive (BRRD), which was agreed between negotiators for the European parliament and EU member states on Wednesday, brining to a close months of difficult talks. The reforms give all EU countries a rulebook at national level to handle a bank in trouble and, if necessary, bail-in creditors to help foot the bill.

The Dutch, however, are unimpressed. They think the draft agreement offers too much freedom to governments wanting bailout banks with public money, rather than impose losses on bondholders. And it looks like they have a significant number of allies. Read more

Mario Draghi, left, stands next to Noonan at last week's finance ministers' meeting

Given the eurozone crisis has, for more than a year, failed to seriously rankle the financial markets, those of us still preoccupied with its aftermath and how it is changing Europe can occasionally feel like a small band of obsessives offering up Talmudic pronouncements of interest to a dwindling number of fellow crisis junkies.

But occasionally one of those textual debates rises to the level of importance that’s worth the attention of a broader audience. And one of those occasions seems to have occurred over the last couple of weeks regarding Ireland and the European Central Bank’s bond-buying programme, known as Outright Monetary Transactions (OMT).

For those who haven’t been following this obsessively, the discussion is important because most officials and market analysts credit OMT with, essentially, ending the hair-on-fire phase of the eurozone crisis last year. Read more

Ireland's Enda Kenny, left, and Germany's Angela Merkel meeting last year in Berlin

With just over a month of funding left in Ireland’s €67.5bn three-year bailout, Irish prime minister Enda Kenny sent a subtly-worded letter to his fellow EU leaders as they gathered in Brussels today for their two-day summit.

At first glance, the letter (we’ve posted a copy here) seems to simply repeat messages that Kenny has made in the past: he’s weighing whether to request a line of credit after they exit the bailout; he wants quick completion of the eurozone’s “banking union”; he continues to hit his bailout targets.

But a closer read between the lines shows a more complicated game going on. In essence, Kenny is reminding other leaders they have failed to live up to promises made to Ireland last year that would have significantly lowered the Dublin’s sovereign debt levels. An annotated look at the letter after the jump.

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Backstops? A safety net for banks in difficulty? Why the fuss? We have one already! That is the rough conclusion from finance ministers meeting in Luxembourg on Monday and Tuesday.

To provide some context, the apple of discord is whether Europe should pool more public funds to stand behind its banking system. Looming on the horizon is a stress test of banks next year that is supposed to restore faith in the financial system. It may uncover horrors that can’t be covered by contributions from private investors. If a bailout is needed, the open question is whether the bank’s sovereign will be able to fund it by borrowing from the market or from eurozone bailout funds without rekindling the sovereign debt crisis.

So what is the plan? Well there is no sign of new money. For the more optimistic finance ministers the ultimate, ultimate backstop — only to be used in exceptional circumstances — is apparently a “direct recapitalisation” from the European Stability Mechanism, the eurozone’s E500bn bailout fund.

The trouble is that there are a legion of hurdles to clear before using this instrument in practice — especially if it is to be used to cover any shortfall exposed next year. The rough rules on the use of the instrument were published in June. Many senior officials think it is so encumbered with conditions as to be almost pointless. If direct recap is the backstop, some finance ministers will be worriedly looking over their shoulder.

TEN OBSTACLES TO A DIRECT RECAPITALISATION

1. German veto: Any ESM decision to take a direct stake in a bank is subject to a German veto. Berlin is determined to ensure that even if this tool is theoretically “available”, it remains unused. Wolfgang Schäuble, Germany’s finance minister, even said on Tuesday that German law would need to be changed to use the direct recap instrument.

2. German veto: the Bundestag would have to vote through any direct recap. Germany’s centre-left Social Democratic Party, the most likely coalition partner for Chancellor Angela Merkel, is dead-set against direct recapitalisation of banks. It thinks the financial sector, not taxpayers, should foot the bill for bank failure. Read more

My big fat Greek presidency it will not be. When Athens takes the reins of the EU’s rotating presidency in January, the government will manage the event like a family throwing a frugal wedding.

That is only to be expected since Greece’s crisis-hit economy is now enduring its sixth year of recession, the public coffers are bare and unemployment is nearing 30 per cent. Dishing out huge amounts of cash to impress visiting diplomats would likely provoke outrage from a citizenry that is increasingly unhappy with the EU, as it is.

So how frugal is Greece planning to be? The government has set a €50m budget for the six-month affair, down from the €60m to €80m spent by predecessors like Ireland,Cyprus,Denmark and Lithuania. Officials say they are hoping that the final bill comes to even less.

The Greeks have found a few simple ways to cut costs. They will limit the number of ministerial meetings that will be held in their country to just 13 – keeping as much of the work in the EU’s Brussels headquarters as possible. All of the Greek meetings will be hosted in Athens. Read more