Greece

What would a third bailout for Greece look like? The International Monetary Fund has provided the first public insight into how much it could cost, and it will be expensive. According to IMF estimates, over the next three years, Greece will need €52bn in new bailout financing.

That is close to an estimate we came up with in February. But that may not even be enough. The new IMF debt sustainability analysis, which we’ve posted here, assumes the money in the EU bailout that just disappeared would be used to cover Greek needs through October. That cash, about €16.3bn, is now gone. So the total price tag could go up to close to €70bn.

But that’s not all. The IMF report also assumes the budget targets and economic growth projections made during the recent negotiations still hold. Under that plan, Greece would post a primary budget surplus – revenues minus expenses, when interest on debt isn’t counted – of 1 per cent of gross domestic product this year, rising gradually to 3.5 per cent in 2018.

It also assumed no economic growth this year, but a return to 2 per cent growth next year and 3 per cent in 2017 and 2018.

Given Greek banks have been closed for a week and its economy is in free-fall, those targets are, in all likelihood, becoming more outdated by the minute. Read more

Demonstrators backing a "yes" vote in Sunday's referendum in front of the Greek parliament

It may have come a few days too late, but Alexis Tsipras, the Greek prime minister, appears to have conceded on a whole raft of outstanding differences between his government and its international bailout creditors.

According to a letter sent late Tuesday night to the heads of the country’s trio of bailout monitors, which we got our hands on and have posted here, Tsipras concedes to most of the economic reform proposals published by the European Commission on Sunday, with a few significant exceptions that could still trip up any deal.

On one of the most contentious issues, overhauling the country’s value-added tax system, Tsipras still wants a special exemption for Greek islands, some of which are in remote areas and have difficulty accessing basic daily needs.

Keeping the islands’ exemption in place has been one of the main demands of Tsipras’ junior coalition partners, the right-wing Independent Greeks party. But creditors, whose main goal is simplifying one of the EU’s most exemption-ridden VAT schemes, have balked, saying it requires an entirely separate administration to keep the islands on a different, reduced rate.

On the toughest of all issues between the two sides, pension reform, Tsipras is demanding even more concessions, which come after the creditors have already moved quite a bit in Athens’ direction. Read more

Alexis Tsipras, the Greek prime minister, has once again changed the terms of the debate in the ongoing crisis by requesting a new third bailout from the eurozone’s €500bn bailout fund, known as the European Stability Mechanism, just hours before his current bailout expires.

According to a copy of the letter sent to the ESM and Jeroen Dijsselbloem, the Dutch finance minister who chairs the committee of his eurozone counterparts, which we’ve posted here, the loan request is for €29.1bn to cover debts maturing into 2017.

That would seem to be a pretty traditional bailout request. But it also contains some untraditional demands that may be difficult for creditors to accept. Below is an annotated version of Tsipras’ letter:

Dear Chairperson, dear President,

On behalf of the Hellenic Republic (“the Republic” or “Greece”), I hereby present a request for stability support within the meaning of Articles 12 and 16 of the ESM Treaty.

The ESM treaty is the law that now governors all eurozone bailouts. It wasn’t in place for either Greece’s first or second bailouts, but it would set the terms for its third. Articles 12 and 16 simply state the purpose of a bailout programme: to “to safeguard the financial stability of the euro area as a whole and of its Member States.” Unfortunately for Tsipras, Article 16 also happens to mention that a new programme must include a new “MoU” – or memorandum of understanding, a phrase that is politically poisonous in Greece.

 Read more

Demonstrators hold up placards urging a "no" vote in Sunday's bailout referendum

[UPDATE] Late on Monday, Donald Tusk, the European Council president, wrote to Alexis Tsirpas, the Greek prime minister, to inform him that his request for reconsidering an extension of his country’s bailout had been denied. We’ve obtained a copy of that letter, too, and posted it here.

In it, he notes the eurogroup of finance ministers already decided the issue, adding:

After consultations with leaders, in the absence of new elements, I see no willingness to go against the position expressed by finance ministers at their 27 June meeting.

This is likely the last chance Tsipras had to avoid having Greece’s EU bailout expire on Tuesday night. With that gone, on Wednesday his country goes without an EU safety net for the first time in five years.

There may be less than 48 hours remaining in Greece’s EU bailout, and Saturday’s decision by eurozone finance ministers not to extend the programme through next Sunday’s Greek referendum on creditors’ “final” offer was largely seen as the final nail in the rescue’s coffin.

But could it still be extended at the 11th hour?

That’s clearly the hope of Alexis Tsipras, the Greek prime minister, who has written to all eurozone heads of government asking them to reconsider the decision. We’ve obtained a copy of the letter sent to Xavier Bettel, the prime minister of Luxembourg, who takes over the EU’s rotating presidency this week. A copy of the letter is posted hereRead more

Finance minister Yanis Varoufakis, left, with Greece's negotiating team at the eurogroup

Athens’ final counterproposal to its trio of bailout monitors would re-impose many of the large-scale corporate taxes and pension contributions that creditors demanded be stripped out amid concern it would plunge Greece into a deeper recession.

According to a copy, distributed to eurozone finance ministers Thursday and obtained by the Financial Times, Athens has stuck with its demand for a one-time 12 per cent tax on all corporate profits above €500,000, a measure the government estimates will raise nearly €1.4bn by the end of next year.

In addition, it would raise employer contributions to Greece’s main pension fund by 3.9 per cent and would more slowly implement measures to raise the country’s retirement age to 67 and “replace” rather than phase out a special “solidarity grant” to poorer pensioners.

We have posted a copy of the Greek counterproposal here.

Greece’s bailout creditors – the International Monetary Fund, European Central Bank and European Commission – eliminated the one-time profits tax and the increase in employer contributions to the pension system in their offer to Athens yesterday, arguing that such heavy levies on companies would severely hit economic growth. It also pushed for more aggressive timeline for raising the retirement age and cutting the special top-up for poorer pensioners.

Still, the Greek plans contain some key concessions from the original proposal submitted by Alexis Tsipras, the Greek prime minister, to creditors in an offer made on Monday. Although legislation raising the retirement age would not be implemented until the end of October – creditors want it to kick in immediately – it accepts the 67-year retirement age should be hit by 2022. Originally, Athens was proposing 2025. Read more

IMF's Christine Lagarde, right, and EU economics chief Pierre Moscovici in Brussels Wednesday

As expected, the standoff between Athens and its creditors that exploded into the open on Wednesday has focused on pension reforms – a point made clear in a document obtained by the FT’s correspondent in Athens, Kerin Hope.

According to the five-page list of “prior actions” – which are always the real nitty-gritty in any bailout agreement, since it lists the specifics that the sitting government must implement and the calendar for implementation – creditors have asked for wholesale changes to the pension proposals made earlier this week by Alexis Tsipras, the Greek prime minister.

We’ve posted the document here.

In order to achieve savings of 1 per cent of gross domestic product – or about €1.8bn – starting next year, creditors are demanding a significant rewriting of Tsipras’ pension reform plan.

First, rather than gradually raising the effective retirement age to 67 by 2025 as Athens has proposed, creditors want that moved up to 2022 (Athens had originally shot for 2036 in one of its earlier proposals). The creditor plan would allow for retirement at 62, but only for those who have paid into the system for 40 years. Those measures would become law immediately, under the counterproposal. Read more

Greek soldiers march in front of parliament during a military parade to mark independence

One of the oddities of Greece’s bailout programme has been that, despite five years of punishing austerity, its military budget remains amongst the highest in the EU.

Early in the crisis, the issue became controversial during a dispute over whether Athens should follow through on a contract to purchase German-built diesel submarines – a move that was criticised as a way to curry favour with Greece’s largest creditor.

More recently, the far-left government of Alexis Tsipras raised questions when it agreed to sign off on a €500m programme to upgrade five aging US-made maritime patrol aircraft.

And according to a document obtained by Brussels Blog and posted here, the issue has come up again during the current standoff between Athens and its international creditors as a way to breach the fiscal gap the two sides are currently wrestling over.

To recap, Greece’s bailout monitors have pushed Athens to make up a €1bn-€2bn annual budget shortfall by cutting public sector pensions and raising value-added taxes on some items like electricity, which Tsipras has resisted. Creditors have insisted they are open to other ideas, but argue Athens has not come back with credible alternatives.

The three-page document, circulated among creditors, shows that two of Greece’s bailout monitors – the European Commission and European Central Bank – think defence cuts would be one way to make up the difference and have suggested changes (particularly moving to a less manpower-intensive force structure, a decision several Nato allies like the US have already taken) in talks with Greek negotiators:

 Read more

Greece's Alexis Tsipras with EU Commission president Jean-Claude Juncker last week

This weekend’s fireworks over Greece’s bailout were centred on a new counterproposal submitted by Greek ministers, who flew to Brussels to turn it over by hand. As the world knows by now, senior European Commission officials – acting on behalf of all three Greek bailout monitors – rejected it out of hand.

For Brussels Blog readers who want to evaluate the proposal for themselves, we obtained a copy of the new Greek plan and have posted it here (our friends and rivals at the Greek daily Kathimerini beat us to the punch, and you can read their summary here).

The most important thing to note is that, after weeks of holding out, Athens has agreed to meet the creditors’ demands on fiscal targets for this year and next year. In 2015, they’ve agreed to a primary budget surplus – revenues minus expenses when interest on sovereign debt isn’t included – of 1 per cent of gross domestic product, and 2 per cent for 2016. That’s exactly the levels demanded by creditors in a compromise plan presented to Alexis Tsipras, Greek prime minister, nearly two weeks ago.

But creditors do not believe the underlying figures in the document support those targets. One official cited the €700m Athens proposes to save next year through cracking down on value-added tax fraud as an item that fails to hold up under scrutiny. Read more

Tsipras, left, with European Commission president Jean-Claude Juncker on Wednesday

The Greek government of prime minister Alexis Tsipras has long argued debt relief must be part of any new agreement to complete its current €172bn bailout. But the compromise plan drawn up by its international creditors and presented to Tsipras on Wednesday night in Brussels (obtained by the Greek daily To Vima, and posted here) contains no such promise.

So Athens is intending to present its own restructuring plan that the government claims will cut its burgeoning debt load from the current 180 per cent of gross domestic product to just 93 per cent by 2020.

The plan is touched on in the 47-page counter-proposal Athens sent to its creditors Monday night (see page 44 in the document, posted by the German daily Tagesspiegel here). But it is given a full treatment in a new seven-page document authored by the government and entitled “Ending the Greek Crisis”. Brussels Blog got a copy and posted it here.

The restructuring plan is ambitious, offering ways to reduce the amount of debt held by all four of its public-sector creditors: the European Central Bank, which holds €27bn in Greek bonds purchased starting in 2010; the International Monetary Fund, which is owed about €20bn from bailout loans; individual eurozone member states, which banded together to make €53bn bilateral loans to Athens as part of its first bailout; and the eurozone’s bailout fund, the European Financial Stability Facility, which picks up the EU’s €144bn in the current programme.

If all the elements of the new plan are adopted, the Greek government reckons its debt will be back under 60 per cent of GDP – the eurozone’s ceiling agreed under the 1992 Maastricht Treaty – by 2030, as this chart from the document shows:

 Read more

Greece's hulking finance ministry, overlooking Athens' central Syntagma Square

With Greece’s government coffers dwindling by the day, nervous creditors have been watching each and every debt repayment and monthly wage bill closely for signs Athens has finally run out of cash.

But despite many predictions the country should have gone bust by now, the Syriza-led government has managed to scrape together enough funds to pay its creditors – including a €200m payment to the International Monetary Fund that was due today – and, despite some hiccups, the pensions and salaries owed government workers as well.

Some of that cash has been found in the bank accounts of independent government agencies, and more recently the government has been trying to raise additional funds by pooling unused reserves from local municipalities – a move that has generated considerable backlash.

But under the radar, the Greek government appears to have found a different, more traditional way to raise extra money: it’s collecting more taxes and spending less money.

According to data released just over a week ago – which was widely overlooked, since it was published the same day as a highly-contentious meeting of eurozone finance ministers in Riga – the Greek government is actually doing even better than it was a year ago in tax revenues, spending reductions, and primary surpluses. Read more

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

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

Jean-Claude Trichet, right, with the parliament's economic committee chair, Sharon Bowles

The troika of bailout lenders has not been getting much love at the European Parliament’s ongoing inquiry into its activities in recent weeks. But the criticism is not just coming from MEPs in the throes of election fever. Predictions of the troika’s demise have come from some unexpected quarters, including current and former members of the European Central Bank executive board.

During the hearings, MEPs have particularly criticised the troika — made up of the International Monetary Fund, European Commission and the ECB — for its overly optimistic growth forecasts for bailout countries, which have been repeatedly revised downwards. Perhaps unsurprisingly, they have also suggested that the troika be subject to greater parliamentary oversight.

Hannes Swoboda, the Austrian social democrat who heads the centre-left caucus in the parliament, went further, saying the body is undemocratic, hostile to social rights and that the EU would be better off without it. Read more

Did tight-fisted budget policies in Germany help make the eurozone crisis deeper and more difficult for struggling bailout countries like Greece and Portugal?

That appears to be the conclusions of a study by a top European Commission economist that was published online Monday – but then quickly taken down by EU officials.

Our eagle-eyed friend and rival Nikos Chrysoloras, Brussels correspondent for the Greek daily Kathimerini, was able to download the report and note its findings before the link went dark (Nikos kindly provided Brussels Blog a copy, which we’ve posted here).

Shortly after being contacted by Brussels Blog, officials said they would republish the 28-page study, titled “Fiscal consolidation and spillovers in the Euro area periphery and core”, once a few charts were fixed. And as Brussels Blog was writing this post, it was indeed republished here.

Still, the paper’s day-long disappearance looks suspicious given the hard-hitting nature of its findings. For some, they may not be surprising. Many economists have argued that it was the simultaneous austerity undertaken by nearly all eurozone countries over the course of the crisis that pushed the bloc into a deeper recession than predicted, hitting Greece and other weak economies particularly hard.

But coming from the European Commission’s economic and financial affairs directorate – which was responsible for helping administer Greek and Portuguese bailouts as well as provide semi-mandatory policy advice to other eurozone economies – the criticism of Berlin is unexpected, to say the least. 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