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By Mehreen Khan in London
The International Monetary Fund’s latest recommendations on Greek debt relief have leaked.
Yesterday, ahead of the latest meeting of eurozone finance ministers on May 24, the IMF repeated it would take part in Greece’s €86bn bailout only if its European partners could prove “the numbers add up”.
A key part of this calculation is for the fund to be fully assured that Greece’s debt mountain is finally placed on a sustainable downward trajectory. Read more
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Jeroen Dijsselbloem, the Dutch finance minister who chairs meetings of his 18 eurozone counterparts, had threatened to bring his eurogroup back to Brussels tomorrow for this year’s first unscheduled meeting on Greece – but only if bailout negotiators agreed on a new set of austerity measures with Athens beforehand. Last night, Mr Dijsselbloem announced that more time was needed to reach a deal, raising the risk that Greece’s bailout standoff could once again be headed for a period of bitter brinkmanship.
Many signs of a repeat of last year’s Grexit drama are present: irreconcilable differences between Athens and its bailout creditors; a looming July debt payment owed to the European Central Bank; angry denunciations by embattled Greek prime minister Alexis Tsipras. The risk of a rerun was underlined by reports last night that Mr Tsipras was due to call Donald Tusk, the European Council president, this morning and demand a special summit of eurozone leaders to hash out a way forward.
It’s unlikely eurozone heads of government will want to take up the Greek crisis right now, with a drop-dead deadline still months away and the prospect of another eurogroup meeting looming as early as next week. But differences between the major players in the Greek drama remain deep, and a deal among mid-level negotiators remain stuck on two primary issues:
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Which European country has received the most asylum seekers on a per capita basis so far this year? Germany? No. Sweden? No. Hungary? No. After this weekend, it is actually the Vatican. Aided by a low official population of 450, the Vatican shot to the top of the leaderboard when it comes to housing refugees after Pope Francis returned from his trip to Lesbos with 12 Syrians in tow.
The gesture was token and humanitarian rather than political — or so the Vatican’s spinners insisted. But it provided an ugly juxtaposition for German Chancellor Angela Merkel, who spent the weekend fending off criticism at home after giving the go ahead for a criminal investigation into a comedian who made jokes at the expense of Turkish president Recep Tayyip Erdoğan.
The footage of a pope embracing asylum seekers who fled war only to face months of detention in Greece and then a legally questionable return across the Aegean provided the grimmest reminder yet of the moral price that the EU has paid for the Merkel-led deal with Turkey. Read more
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When Wikileaks published a transcript last week of a private teleconference between top International Monetary Fund officials discussing Greece’s bailout, the thing that got Athens the most worked up was a prediction made on the call by the IMF’s European chief Poul Thomsen: he forecast there would be no decision on the programme’s way forward until Greece ran out of money in July. Yesterday, bailout negotiators left Athens after yet another fruitless week of talks. And while they vowed to resume negotiations during the IMF’s spring meetings in Washington, which start on Friday, the differences between the main players remain so wide that Mr Thomsen’s prediction may not be too far off the mark.
For those who only follow the Greek crisis episodically, the fact that the eurozone is facing yet another make-or-break bailout deadline may seem baffling. Wasn’t the Grexit car wreck avoided last July after a series of all-night summits ended with a €86bn rescue deal? Yes and no. The July deal gave Greece €13bn of the €86bn almost immediately, after Athens agreed to quickly pass an overhaul of its value-added tax system and make cuts to pension benefits. But much of the heavy lifting was put off until the new bailout’s first quarterly review – including, critically, a decision by the IMF on whether to participate in the bailout at all.
Casual followers may read the words “first quarterly review” and assume that such a review would be completed at the end of the first quarter. Which, in the case of the new Greek programme, would have meant October. But it has become an unfortunate custom that “quarterly” reviews of Greek bailouts can actually stretch over several quarters – the fifth quarterly review of the second Greek bailout went on for nearly a year. The current “quarterly” review has now gone on for about six months after the first quarter ended. Read more
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Last week’s highly-touted agreement to deport migrants from Greece to Turkey went into force yesterday, which means we will soon know the answer to the most critical question now facing the EU: Have leaders burned massive political, legal and moral capital striking a deal with Turkey that will never work?
The most immediate fear is that the Greek authorities are far from ready for the Herculean task of shipping thousands of people from the Aegean islands. Then, there is the concern that desperate migrants (and the people smugglers) will probably quickly switch to even more perilous entry points into the EU, like via war-torn Libya and across the Mediterranean into Italy.
EU officials are under no illusions. Most leaders at Friday’s Brussels summit that agreed the deal were sombre rather than triumphant. Above all, there was a tacit acknowledgment that, even by its own standards, the EU had brazenly pushed the law to the very limits. Human rights groups are bound to challenge the EU’s actions over the coming weeks and months. Read more
Next week, the European Commission will take its latest step in its ongoing quest to move beyond the LuxLeaks corporate tax avoidance scandal that has periodically dogged President Jean-Claude Juncker.
Pierre Moscovici, the EU’s tax policy chief, is set to unveil a flurry of proposals aimed at tackling so-called base erosion and profit shifting: in other words the aggressive tactics used by multinationals to shrink their tax bills by as much as possible. This morning, we’ve done a story about the new proposals, which we obtained. But we’ve also now posted them here for others to read.
The so-called LuxLeaks revelations emerged shortly after Mr Juncker became commission president in November 2014, and dogged his early days in office. They documented how during his two decades as Luxembourg prime minister, up to 340 multinational companies, ranging from Ikea to Pepsi, funnelled profits through the tiny country to lower their tax bills to as little as 1 per cent.
The commission has embarked on a wave of regulatory changes to close loopholes, including making a renewed push for the longstanding EU goal of having a common consolidated corporate tax base for companies. It is also pursuing high profile competition cases against tax deals Luxembourg and others struck with multinationals such as Apple, Amazon and Fiat.
Most recently, the European Commission ordered Belgium to recoup about €700m from 35 multinational companies that have benefited from the country’s generous fiscal incentive scheme.
Mr Moscovici’s plans, which are outlined in a 13-page summary posted here, enshrine international agreements reached by the Organization for Economic Cooperation and Development into EU law, and in some cases go even further – notably when it comes to restricting the ability of companies to shift of profits from parent companies to lightly taxed subsidiaries. Read more
Klaus Regling has been the head of the eurozone’s rescue funds – first the temporary European Financial Stability Facility, now the permanent European Stability Mechanism – since the outset of the debt crisis, a perch that has given him a unique insight into the five years of occasionally contentious deliberations over the bloc’s five bailouts: Greece, Ireland, Portugal, Spain and Cyprus.
But as the EFSF turned into the ESM, and as the €500bn ESM gained staff and authority, Regling’s own role in eurozone debates has grown – particularly on the issue of Greek debt, where he has been a frequent and outspoken critic of the argument, made both in Athens and by the International Monetary Fund, that the heavy debt burden is what ails the Greek economy.
Two years ago, in an interview with our friends and rivals at the Wall Street Journal, Regling in essence sounded the death knell for a November 2012 deal where eurozone governments had promised debt relief for Athens as long as it achieved a primary budget surplus – something it achieved by the end of 2013. As Regling predicted, the eurozone did not restructure Greece’s debts despite Athens living up to its side of the 2012 agreement and posting a surplus.
In an interview this week with the Financial Times, Regling has done something similar. As part of July’s controversial €86bn bailout deal, creditors again held out the promise of debt relief. And Regling is now suggesting that even if it does occur, a restructuring will not be on the scale Athens and the IMF had been arguing for just four months ago.
Our story on the Regling interview is here, but as is our practice at the Brussels Blog, we’re offering an annotated (and slightly edited for length) transcript for readers who want to hear more from Regling below. Read more
When Jean-Claude Juncker this week told a packed European Parliament he intends to forge a eurozone system for guaranteeing bank deposits, the European Commission president’s intention was to send a firm message of determination to strengthen the single currency’s foundations.
But just days after Juncker’s “state of the union” address, his attempt to sow hopeful seeds has hit stony ground in Berlin, where the plan was taken more as a declaration of war.
Germany’s fightback begins when finance ministers gather in Luxembourg on Friday, and is set out in a “non paper” obtained by the FT. Our story on the document in the FT’s dead-tree edition is here, but for those who want a bit more detail, we’ve posted it here, too.
Unlike the series of emergency gatherings on Greece this summer, the weekend “informal” meeting of eurozone finance ministers was intended to be a calmer, and above all shorter, stocktaking of the health of the common currency.
Now, however, Germany has decided to use it as an opportunity to put down clear red lines in an attempt to redirect the eurozone reform discussion, which gained momentum following the mess of the July Greek bailout deal on what Berlin believes is an unacceptable course. Read more
After spending much of the six-month standoff between Greece and its eurozone creditors on the sidelines, Donald Tusk, the former Polish prime minister who is now European Council president, became the central actor in the Greek drama over the weekend when a summit he chaired became the scene of 17-hour marathon talks that finally led to a deal on Monday morning.
In a 90 minute interview with the Financial Times and six European newspapers, Tusk gave a behind-the-scenes account of how the deal was brokered – but he also gave voice to fears that the standoff has given new energy to radical political forces in Europe that has made 2015 resemble 1968. Our full write-up of the interview, focusing on his concerns about renewed radicalisation can be read here.
But as is our practice at the Brussels Blog, we’re providing a transcript of the interview below. It is slightly edited to eliminate occasionally long-winded questions and topics not directly related to the Greek crisis.
The interview started with a question on Germany and whether Tusk agreed with some commentators that Berlin’s standing in Europe has been hurt by perceptions Angela Merkel, the German chancellor, bullied Greece and its leader, Alexis Tsipras, into a deal on her terms.
I think the position in Germany today, after this negotiation, is maybe not weaker, but for sure not more powerful. It was one of my main aims in these negotiations, to avoid this risk that someone is a loser and someone is a winner, especially because as you noticed, for sure, the discussion during this economic negotiation was also about things like dignity, humiliation, trust. From history, we know very well that we can’t ignore such values, or such feelings or emotions like dignity, humiliation and trust, especially when we go back to German history. The discussion about dignity and humiliation could recall the most dangerous time in Europe, and this is why I think it’s very important to avoid this dimension in discussions and in negotiation because for sure what we needed was to have no losers and no winners in this context.
The discussions held on Saturday and Sunday among eurozone finance ministers exposed fissures between one group of European governments that have lost almost all faith in the radical leftist-led government of Alexis Tsipras, Greece’s premier, a second group that contends it is time to cut Greece some slack and move on with another rescue programme, and a third group that straddles the first two.
Nevertheless, the important point is that impatience with the Syriza-dominated government in Athens is not so deep and universal that a consensus exists to prepare the ground for a Greek exit from the eurozone, with all its unpredictable economic, financial and geopolitical implications. In this respect the opposition of France and Italy, and of the European Commission, to such a step is proving to be decisive. Read more
The package sent to creditors included three documents: first is a letter from Alexis Tsipras, the Greek prime minister, which we’ve posted here; second it a more detailed letter from Euclid Tsakalotos (here), the new finance minister; and the third is what’s called the “prior actions” – a 13-page plan of reform measures that must be completed prior to winning bailout aid (here).
We will more completely gut these documents in the morning, but a few things that stand out. First, none of the documents mentions debt relief. This was a major demand of Yanis Varoufakis, Tsakalotos’ predecessor. And while it is obliquely mentioned in Wednesday’s bailout request, there’s nothing in the documents sent to Brussels Thursday night that mentions the topic.
Instead, what is interesting about both the Tsipras and Tsakalotos letters is their explicit mention of wanting to remain in the EU’s common currency. As Tsipras puts it:
With this proposal, the Greek people and the Greek government confirm their commitment to fulfilling reforms that will ensure Greece remains a member of the Eurozone and ending the economic crisis. The Greek government is committed to fully implementing this reform agenda – starting with immediate actions – as well as to engaging [sic] constructively on the basis of this agenda, in the negotiations for the ESM loan.
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
Greece’s recently-departed finance minister Yanis Varoufakis repeatedly argued that Greece could never leave the eurozone because there is nothing in the EU treaties that permits exit from the bloc’s common currency. But that hasn’t stopped EU lawyers from looking.
According to eurozone officials, EU legal scholars have been combing through the treaties to find provisions that would allow for Grexit – not because it is something they’re pushing for, but rather because they’re worried the country could be soon entering a legal limbo that could prevent it from getting the financial aid it desperately needs.
If Greece begins printing its own money – which could happen in a matter of weeks if the European Central Bank decides to cut off emergency loans to Greek financial institutions – it may no longer be eligible for aid from the eurozone’s €500bn rescue fund, since it is using a different currency.
But because Greece would still be legally part of the eurozone, it wouldn’t be eligible for the aid scheme reserved for non-EU countries, known as a “balance of payments assistance” programme. Hungary, Romania and pre-euro Latvia all received so-called “BPA” programmes during the crisis.
The traditional assumption is that because there is no explicit way to leave the eurozone, the only clause that comes into play is Article 50 of the Treaty on European Union, which allows for withdrawal from the entire EU. This would require Greece to request a departure, however, which is unlikely, and while there are an increasing number of leaders willing to let Greece leave the eurozone, none want it to leave the EU.
Officials say lawyers are instead looking at Article 7, which was adopted for a very different reason: In the wake of the Austrian government’s decision to include the far-right Freedom Party of nationalist Jörg Haider in a coalition, EU leaders wanted a way to punish countries that did not live up to European values. Read more
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
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.
[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 here. Read more
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
Eurozone finance ministers have begun to gather for their fourth meeting in a week, attempting yet again to strike a deal on a package of Greek economic reforms to release a desperately-needed €7.2bn in bailout funds to Athens.
The ministers have been sent what one official termed a “feasibility blueprint” – but the Financial Times has obtained a copy and it looks very much like the version creditors annotated and sent back to Athens on Tuesday. We’ve posted a copy of the document here.
The first place to look is page three of the nine-page document, where the section on pension reforms begins. This has become the major sticking point between the two sides and, while it makes some concessions to the Greek government, it is very much in keeping with creditor demands that early retirement schemes be curtailed and the effective retirement age be raised very quickly.
Under the plan sent to finance ministers, Athens would ensure the retirement age is moved to 67 by 2022, significantly faster that Alexis Tsipras, the Greek prime minister, had sought. Originally, Athens was pushing for 2036, but Mr Tsipras’ compromise plan submitted on Monday moved that to 2025. Read more
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