Greek finance minister Yannis Stournaras, left, and IMF chief Lagarde at Monday's meeting.
It may be incomplete and its conclusions subject to debate, but on Monday night eurozone finance ministers got a draft copy of the much anticipated troika report on Greece. As we report online, there’s not much in it we didn’t already know – including the fact Greece will need as much as €32.6bn in new financing if the programme is extended through 2016.
But the language in the report is, as usual, pretty revealing. We’ve posted a copy of the draft here. It makes clear that eurozone creditors will be leaning on Greece pretty heavily for the foreseeable future. This, in spite of the fact the Greek parliament barely passed €13.5bn in austerity measures last week amidst serial defections form its governing coalition.
The most glaring is that Athens will have to find an additional €4bn in austerity measures for 2015 and 2016, meaning the pain isn’t done yet. But it also implies there are some more shorter-term measures that haven’t been completed yet that the troika is expecting.
Greece has revamped its reform effort and fulfilled important conditions…. These steps, which have tested the strength and cohesiveness of the coalition supporting the government, leaving also some scars therein, significantly improve the overall compliance, provided some remaining outstanding issues are solved by the authorities.
Greek finance minister Stournaras, left, and prime minister Samaras during last night's debate.
Tonight’s meeting of eurozone finance ministers was, as recently as a week ago, thought to be the final bit of heavy lifting needed to complete the overhaul of Greece’s second bailout. After all, Athens has done what it promised: it passed €13.5bn of new austerity measures on Wednesday and the 2013 budget last night.
But EU officials now acknowledge that the Brussels meeting of the so-called “eurogroup” will not make any final decisions on Greece amid continued debate over how much debt relief Athens needs – and how fast it should come. That means a long-delayed €31.3bn aid payment will be delayed yet again.
One EU official said that despite hopes, the key part of a highly-anticipated report from international monitors – known as the “troika report” because it is compiled by the European Central Bank, International Monetary Fund and European Commission – will not be ready in time for tonight’s meeting: the debt sustainability analysis, which remains a point of contention. Read more
A woman walks by Greek anti-bailout graffiti in central Athens earlier this week.
For those who really want to get into the nitty gritty of the revised Greek bailout, we’re also posting two other documents we got our hands on and used for today’s story on the nearly-completed deal in order to provide more detail on what the new rescue programme will look like.
The first document is an October 14 draft of the official “Memorandum of Understanding on Specific Economic Policy Conditionality”; the second is the “Memorandum of Economic and Financial Policies”.
Both are chock full of austerity and reform commitments Athens is making to get the bailout extension. But the second memorandum has far more detail on what kind of budget demands Athens is agreeing to. Although there are gaps where specific budget targets are to be included, page two and page nine give strong hints of where they are headed. Read more
IMF managing director Christine Lagarde, during this morning's news conference in Tokyo.
IMF chief Christine Lagarde’s declaration this morning that Greece should be given two more years to hit tough budget targets embedded in its €174bn bailout programme – coming fast on the heels of German chancellor Angela Merkel’s highly symbolic trip to Athens – are the clearest public signs yet of what EU officials have been acknowledging privately for weeks: Greece is going to get the extra time it wants.
But what is equally clear after this week’s pre-Tokyo meeting of EU finance ministers in Luxembourg is there is no agreement on how to pay for those two additional years, and eurozone leaders are beginning to worry that the politics of the Greek bailout are once again about to get very ugly.
The mantra from eurozone ministers has been that Greece will get more time but not more money. Privately, officials acknowledge this is impossible. Extending the bailout programme two years, when added to the policy stasis in Athens during two rounds of elections and a stomach-churning drop in economic growth, means eurozone lenders are going to have to find more money for Athens from somewhere. Read more
With the European Commission holding its final summer meeting on Wednesday, Brussels goes on holiday in earnest starting next week, with nothing on the formal EU calendar until a meeting of European affairs ministers in Cyprus on August 29.
But if whispers in the hallways are any indication, veterans of the eurozone crisis remain traumatised by last August, when some inopportune comments by then-Italian prime minister Silvio Berlusconi shook Europe from its summer slumber. Indeed, Maria Fekter, Austria’s gabby finance minister, has already speculated on the need for an emergency August summit.
Herewith, the Brussels Blog posts its completely unscientific odds on which of the eurozone’s smouldering crisis embers could reignite into an out-of-control summer wildfire, forcing cancelled hotel bookings and return trips to Zaventem. Read more
Passos Coelho with Britain's David Cameron during a visit to Downing Street on Wednesday
Largely overlooked amidst the handwringing over Spain this week was a piece written by Portuguese prime minister Pedro Passos Coelho in the FT that all but admits publicly what many officials have been saying privately for some time: Portugal is probably going to need a second bailout.
In fairness, Passos Coelho doesn’t actually come out and say that, but it sure sounds like he’s preparing the groundwork:
We are utterly committed to fulfilling our obligations. But while we are optimistic, we must also be realistic and pragmatic. This is why we accept that we may need to rely on the commitment of our international partners to extend further support if circumstances beyond our control obstruct our return to market financing.
Although Portugal’s current €78bn bailout runs through 2014, a decision on whether a second bailout is needed must be made much more quickly than that – probably sometime in the next two or three months. A look at why after the jump… Read more
Italy's Mario Monti, right, with Chinese premier Wen Jiaobao during a Beijing trip at the weekend.
Most of the focus on Friday’s meeting of eurozone finance ministers in Copenhagen was on how much leaders would increase the size of their €500bn rescue system. But according to a leaked document we got our hands on, the eurozone firewall wasn’t the only topic being debated.
The four-page report says the “Budgetary situation in Italy” was item #3 on the eurogroup’s agenda. As we wrote for Tuesday’s print edition, the report warns that any slippage in growth or a rise in borrowing rates could force the technocratic government of Mario Monti to start cutting again – something he has vowed not to do.
As is our practice, Brussels Blog thought it was worthwhile giving some more details and excerpts from the report beyond what fits in the newspaper. Read more
Denmark's Margrethe Vestager, center, with her counterparts in Copenhagen this weekend.
Following our story Saturday and subsequent blog post on two confidential economic analyses prepared for European finance ministers in Copenhagen which paint a less-than-confident picture of the eurozone crisis, we here at Brussels Blog have received multiple requests for more on their contents. Read more
Klaus Regling, head of the eurozone rescue fund
Coming up with a number for the size of the new, enlarged eurozone rescue fund seems to be the favourite parlour game in the run-up to today’s meeting of eurozone finance ministers in Copenhagen.
According to a leaked copy of the draft conclusions obtained by the FT, the ceiling for the next year will be €700bn. But is that, to quote a former US president, fuzzy math? Is it really €940bn…but some leaders are afraid to admit it out of fear of angering their bailout-fatigued national parliaments?
The leaked draft has three elements of a new firewall starting in mid-2012 : €200bn is committed to the ongoing bailouts in Greece, Ireland and Portugal; €240bn of left-over money in the current, temporary rescue fund is frozen in an emergency account; and two-fifths of the new €500bn permanent rescue fund gets capitalised.
The fuzzy math comes in when you try to account for the new permanent rescue fund, called the European Stability Mechanism. An attempt to clarify, plus some excerpts from the draft, after the jump… Read more
Lead negotiators for Greek bondholders, Charles Dallara and Jean Lemierre, outside the Greek prime minister's office last month.
This morning, the dead tree edition of the FT has a story based on some leaked documents we got our hands on regarding the massive Greek debt restructuring that needs to begin in a matter of days.
The documents make clear the schedule is slipping dangerously; the meeting of eurozone finance ministers tonight that has been cancelled was supposed to approve the launch of the restructuring so the process can begin Friday. The whole thing needs to be done before a €14.5bn Greek bond comes due for repayment March 20. Time is running out.
But perhaps more interestingly is the fact that eurozone finance ministries asked for financial advice from New York financial advisors Lazard and legal advice from the New York firm of Cleary Gottlieb Steen & Hamilton about what the consequences would be if they launched the debt restructuring – but were forced to scrap it after it had started.
As is our tradition, we thought we’d give Brussels Blog readers a bit more on what the documents had to say. Read more
Greek government employees protest against austerity measures in Athens on Friday.
As the week comes to an end, we seem no closer to a deal to sort out Greece’s troubles than we were when it started. With rumours of a deal a daily (hourly?) occurrence, and questions over whether eurozone finance ministers will meet Monday to sign off on a new €130bn bail-out, Brussels Blog thought we’d revive our popular “viewer’s guide to the Greek crisis” to lay out the state of play for those not following the negotiations on an hourly basis.
The best way to think of what is currently happening in Greece is to look at it as the proverbial row of dominoes that must fall before a deal is complete. Unless they all fall in order, Athens is at risk of missing payment on a €14.5bn bond due March 20, which could lead to a messy default and renewed chaos across the eurozone.
The first domino has basically been complete since last weekend: a deal with private holders of Greek bonds to wipe off €100bn from Athens’ €350bn debt load.
As we reported on Monday, a consortium of private Greek debt holders has agreed to accept new bonds that are be worth half the face value of their current bonds (including a one-time cash payment). The new bonds would have low interest rates that would reduce their value even more. According to our sources, the “haircut” in the long-term value will be just over 70 per cent.
But there are two more dominoes that must still fall: Greece must (yet again) agree to new austerity measures being urged by the “troika” of international lenders –European Commission, European Central Bank and International Monetary Fund – and then Brussels must decide on how to fund any shortfall. Read more
Portuguese prime minister Pedro Passos Coelho arriving at Monday's EU summit in Brussels
As financial markets watch with nervous anticipation the outcome of the tense negotiations over Greece’s debt restructuring, there is clear evidence that bond investors believe Portugal could be next, despite repeated insistence by European leaders that Greece is “an exceptional and unique case” – a stance reiterated at Monday’s summit.
Portugal’s benchmark 10-year bonds were over 17.3 per cent this week, though things have eased off a bit today. Those are levels seen only by Greece and are a sign the markets don’t believe Lisbon will be able to return to the private markets when its bailout ends next year. Default, the thinking goes, then becomes inevitable.
But are Greece and Portugal really comparable? Portugal certainly shares more problems with Greece (slow growth, uncompetitive economy) than with Ireland and Spain (housing bubbles, bank collapses). But unlike Greece, where talk of an inevitable default was the topic of whispered gossip in Brussels’ corridors from almost the moment of its first €110bn bailout, there is no such buzz about Portugal.
More concretely, the latest report by the European Commission on the €78bn Portuguese bail-out, published just a couple weeks ago, paints a much different picture for Lisbon than for Athens. An in-depth look at the largely overlooked report after the jump… Read more
Obama shakes hands with Treasury chief Geithner after his State of the Union address.
The news overnight focused on President Barack Obama’s annual State of the Union address. For the Brussels crowd, the most interesting thing in the speech may have been what was not in the speech: Europe.
Despite the ongoing eurozone crisis, and the increasingly deep involvement of senior US officials like Treasury secretary Timothy Geithner in crisis management, Obama did not mention Europe’s economic problems once. In fact, his only reference to the continent at all was a line that military alliances in Europe (and Asia) were “as strong as ever”, and putting “Berlin” in a list of global capitals where governments are “eager to work with us”.
Obama’s Republican adversaries have not done much more than that in their frequent televised debates, despite growing concern in Washington that a crisis-induced collapse of Europe’s economy could have a severe impact on the US economy in the midst of this year’s presidential campaign. Read more
Hungary's Viktor Orban, left, with José Manuel Barroso during an EU summit earlier this year.
Perhaps because it is not in the eurozone, the recent turbulence in Hungary has not gotten a huge amount of attention internationally. But Budapest and Brussels are currently on a collision course that could have significant consequences for the region’s economic stability.
At issue is whether the European Union and the International Monetary Fund will provide financial assistance to Hungary at a time the florint is in free-fall and the government’s borrowing costs are skyrocketing, with 10-year bond yields now above 9 per cent, well above levels where Ireland, Greece and Portugal were forced into bail-outs. Standard & Poor’s downgraded Hungarian bonds Wednesday evening, citing the unpredictability of prime minister Viktor Orban’s economic policies – including his attempt to assert more control over Hungary’s central bank.
In a letter to Orban sent this week by José Manuel Barroso, the European Commission president, and obtained by the FT, Barroso drives a hard bargain. Not only does he “strongly advise” Orban to withdraw the proposed laws governing the central bank, but he makes clear that any assistance will come with tough conditions.
Excerpts after the jump. Read more
Belgian strikers demonstrate in Brussels earlier this month to protest new austerity measures.
Herman Van Rompuy, the European Council president, announced overnight (via his now customary way of communicating to the press: Twitter) that he will hold a previously-unscheduled summit of all 27 presidents and prime ministers on January 30.
The gathering is expected to deal with the new intergovernmental treaty to enshrine tough budget rules that leaders hope will be completed by the end of the month — though with a huge amount of eurozone debt coming due in January, the gathering could yet transform into another crisis summit. Diplomats say its likely to start around lunchtime.
One slight problem with that, however. Belgian media is reporting this morning that local unions have announced an event of their own for January 30: a general strike to protest new austerity measures announced by the just-formed government of prime minister Elio Di Rupo. Their ire is focused on proposed changes in pension laws that would force delays in early retirement. Read more
Uwe Corsepius, EU Council's secretary general
UPDATE: According to a British official, the UK has today been invited to participate in the treaty negotiations, a significant shift that will allow London to weigh in on some of the most sensitive issues to be discussed, including whether EU institutions will enforce the new pact.
Senior officials from European national finance ministries chatted last night in the first informal negotiations on the highly-touted new intergovernmental treaty to govern the region’s economic policy, though diplomats say little substance was discussed.
Ahead of the talks, however, Uwe Corsepius, the new secretary general of the European Council, sent out a four-page letter to negotiators in an attempt to set a roadmap for how the talks will proceed – and we at Brussels Blog got our mitts on it.
Significantly, Corsepius writes that he wants negotiations completed by the end of January “so as to allow the signature of the agreement at the beginning of March”. Officials said this is why a new informal EU summit is tentatively scheduled for early February. A first draft of the treaty text could be done by tomorrow, or early next week at the latest. Read more
Finland's Jyrki Katainen, France's Nicolas Sarkozy, Germany's Angela Merkel and EU Commission's José Manuel Barroso at last week's summit.
This morning, we are fronting our newspaper with a story led by fellow Brussels Blogger Joshua Chaffin about the growing problems in multiple European capitals — not just London — with the nascent economic convergence treaty agreed to at last week’s summit.
That story was written with a lot of help from our network of correspondents across Europe, and given space constraints in the dead-tree version of our report, we weren’t able to go into all the detailed accounts we got from our FT colleagues. Here on the blog, we thought we’d provide a more in-depth taste of the potential hiccups ahead. Read more