European Stability Mechanism

Greece's Alexis Tsipras, left, with Germany's Angela Merkel on Tuesday night in Brussels

Greek authorities got their final dash to find a bailout agreement before the weekend formally underway on Wednesday by submitting a simple one-page request to the eurozone’s €500bn bailout fund, the European Stability Mechanism, for a new three-year programme.

Under the timetable agreed with EU leaders at Tuesday night’s summit, the request letter is something of a formality. The real details are due on Thursday, when Athens will submit their “prior actions” proposal – the detailed economic reforms that they will pursue under a new, third programme.

Still, the letter (which we’ve posted here) includes some interesting clues as to where Athens is headed. First of all, Greece is seeking a three-year programme and not a two-year bailout that was requested last week. The International Monetary Fund has estimated a three-year programme could cost as much as €70bn.

The letter also suggests Athens is willing to “immediately implement…as early as the beginning of next week” some of the things that creditors were demanding during negotiations on its old €172bn rescue, which expired June 30 – including tax reforms and pension system overhaul.

This appears part of an effort to quickly release short-term “bridge financing” so that Athens can repay the €1.5bn it still owes to the IMF, avoid a default on a €3.5bn bond due the European Central Bank in less than two weeks, and pay another €3.2bn ECB-held bond in August. 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.

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Dijsselbloem, left, with his predecessor Juncker after his election as eurogroup president

Spain’s decision to abstain from Monday night’s vote on Dutch finance minister Jeroen Dijsselbloem’s ascendance to the chair of the eurogroup served to highlight the almost complete dominance of the EU’s triple-A countries in securing top economic jobs in the eurozone.

If we include France and Austria (both of which were downgraded last year by Standard & Poor’s, but retain triple-A ratings from Fitch), the six creditor countries have swept nearly every big opening save the European Central Bank presidency – which was secured by Italian Mario Draghi only after Axel Weber, then head of the German Bundesbank, unexpectedly withdrew his candidacy.

“The Dutch minister seem to us an appropriate person, but fundamentally, it’s a matter of institutional calculations,” Luis de Guindos, the Spanish finance minister, said today in explaining Madrid’s abstention. “Spain has taken a position in regards to a situation that it considers is unjust, which is the representation to the European institutions.”

Madrid has a particular reason to complain, since it has been completely shut out of the top jobs after losing a Spaniard on the ECB’s executive board last year, despite being the euroszone’s fourth largest economy. Dijsselbloem said he has invited De Guindos to The Hague to discuss the issue. The Spaniard has accepted, officials said.

After the jump, a run-down of the triple-A’s recent winning streak: Read more

Ireland's Enda Kenny, right, with German counterpart Angela Merkel at the EU summit.

It’s been a good week for Ireland.

Not only has last week’s EU summit deal on bank recaptalisation pushed benchmark borrowing rates down to pre-bailout levels (today they were trending down again, to 6.2 per cent, lower than even Spain’s). But it has also enabled Dublin to venture out on the open market for the first time in two years: tomorrow, it will sell €500m in 3-year bills. Small, but a highly-symbolic turning point nonetheless.

Despite the positive market reaction, there is a decent amount of debate in the hallways in Brussels about what, exactly, the deal means for Ireland. As a reminder, eurozone officials agreed to change the rules of future bank bailouts so that the €500bn eurozone rescue fund can inject cash right into struggling banks, something specifically intended for Spain’s upcoming €100bn EU bank rescue.

When Ireland was bailed out, all such money had to be funnelled through the state, meaning it added to Dublin’s ballooning national debt. During the late-night negotiations, Irish officials – aided by backing from the European Central Bank’s Jörg Asmussen and Klaus Regling, head of the bailout fund – were able to insert language saying Ireland would be considered for similar treatment.

Since Ireland has spent about €64bn on shoring up its collapsed banking system, and its overall debt level now stands at about €185bn, moving those debts off its books would surely be the “game changer” touted by Enda Kenny, the Irish prime minster. But how much of that debt could realistically be moved off Dublin’s books? Read more