Euro

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

Reactions around Europe to Angela Merkel’s sweeping victory in Sunday’s German parliamentary elections were mixed. As expected, fellow leaders – particularly those of the centre-right persuasion – sent their congratulations while some on the centre-left called for Merkel to join the Social Democrats in a grand coalition.

In Italy, the Berlusconi-owned newspaper Il Giornale warned the result left the EU “in the hands of the chancellor who helped exacerbate the economic crisis.”

The differing views reflect increasingly polarising opinions towards Merkel across the eurozone. Just last week, the German Marshall Fund published its annual “Transatlantic Trends” report, which included polling of 11 EU countries (plus Turkey) and their views of Merkel’s handling of the eurozone crisis.

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Bank investors beware. Dazzling political fireworks will be launched in Brussels today that may distract you from the reform that really matters, at least over the next few years.

All the attention will naturally be on a bold move to create a powerful authority to wind up eurozone banks — a great leap forward for banking union that puts Germany’s red-lines to the test. Read more

Pedro Passos Coelho, Portugal's prime minister, addresses his nation on Tuesday

Portugal’s political wobble has raised anew questions about whether it will need a second bailout once its current €78bn rescue runs out in the middle of next year. With bond market borrowing costs hovering above 7 per cent – just below levels where Lisbon was forced into the rescue in April 2011 – a full return to market financing appears far less likely than it did just a few days ago.

What are the options if Portugal can’t make it? Back in February, when eurozone finance ministers were weighing whether to give both Ireland and Portugal more time to pay off their bailout loans, EU officials drew up a memo that included a section titled “Options beyond the current programmes and the role of the ESM”.

Although it’s over four months old, it hasn’t been made public before and it offers some newly-relevant insights into what path Portugal may take if it can’t stand on its own by May 2014. Read more

Dijsselbloem, right, meeting Greek prime minister Antonis Samaras in Athens this morning.

As part of the big Franco-German deal announced last night in Paris, President François Hollande and Chancellor Angela Merkel took everyone by surprise by announcing they now want a permanent head of the so-called eurogroup, the committee of 17 eurozone finance ministers that does all the heavy lifting on regional economic policy, including bailouts.

The timing of the agreement (it’s on page 8 of the nine-page “contribution”, which we’ve posted here) is a bit awkward, since a new part-time eurogroup chairman was appointed just six months ago: Dutch finance minister Jeroen Dijsselbloem.

Most EU officials view the deal as more an effort at Franco-German rapprochement than an attempt to force Dijsselbloem out, despite the fact he has stirred controversy in his short tenure in the job. As one senior official put it, agreeing to language that eurozone reforms “could include” a permanent eurogroup chair “is not exactly ousting someone”.

We here at Brussels Blog asked the FT’s man in Amsterdam, Matt Steinglass, to send us the reaction from Dijsselbloem’s homeland:

There is surprise and a bit of resentment. Dijsselbloem was forced to issue a hasty statement that he did not support the move and would not accept the position if it meant he could no longer serve as finance minister.

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Slovenian finance minister Cufer agreed to the outside banking audit just last week.

Last night, after everyone in Brussels had spent most of the day digesting the European Commission’s reports on all 27 EU countries’ budget plans, officials quietly posted far more interesting documents online: the “staff working papers” that underpin the policy recommendations issued earlier in the day.

According to Commission officials, this was done intentionally. They wanted reporters and national officials to focus on the recommendations and not the analysis behind them.

But starting this morning, Brussels Blog began combing through the working documents – which are much longer and more detailed than the Commission recommendations – starting with the country many consider the next eurozone bailout candidate: Slovenia. It makes for eye-opening reading. Read more

It may seem a moot point now that Cyprus’ financial system has, for all intents and purposes, collapsed in the wake of last month’s €10bn eurozone rescue that forced the island to impose capital controls on any large withdrawals from its banks.

But as part of the bailout deal, Nicosia agreed to allow international inspectors to rummage around its banks to investigate allegations of rampant money laundering that were once a major bone of contention in Berlin. The investigation was completed late last month.

Last week, a damning four-page summary of their findings written by the so-called “troika” of bailout lenders was obtained by Brussels Blog and other news organisations (we’re posting it here for the first time, since we only recently able to return to blogging after a hacker attack). The “confidential” troika summary paints a picture of lax enforcement and repeated breakdowns in anti-money laundering procedures.

This afternoon, the Cypriot central bank fired back, issuing its own two-page synopsis of the two reports – one by Deloitte, the other by Moneyval, the Council of Europe’s anti-money laundering monitoring body – which accused the troika of “drawing inferences where none exists in the original reports.” We’ve posted the Cypriot response hereRead more

Nicos Anastasiades, the Cypriot president, leaving bailout negotiations in March.

Remember when accusations of money laundering appeared to be Cyprus’ biggest problem? It was only a few weeks ago that Nicosia was pressured into agreeing an outside auditor to poke around its banks to ensure they are not havens for questionable Russian deposits.

Given the fact Cyprus’ two main banks have been either shuttered or drastically restructured as part of its €10bn bailout, it may now seem a moot point, but the 34-page draft “memorandum of understanding” between Cyprus and bailout lenders (a copy of which we’ve gotten our hands on and posted here) is holding Nicosia to the promise.

On page 6 of the MoU, Cyprus agrees to go forward with the audit, as well as an “action plan” to make clearer just who is behind the “brass plate” shell companies that offshore entities use to take advantage of the island’s low corporate tax rates: Read more