Regling, right, with European Central Bank president Mario Draghi at a press conference
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
Juncker urged additional eurozone reform in his "state of the union" address in Strasbourg
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
Donald Tusk, the European Council president, listens to a question during Thursday's interview
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
Euclid Tsakalotos, the new Greek finance minister, at Tuesday's eurogroup meeting
Late on Thursday, the Greek government submitted its long-awaited economic reform proposal to go along with Wednesday’s request for a new three-year bailout programme.
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.
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
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
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.
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 here. Read 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
Jeroen Dijsselbloem, eurogroup chief, confers with Mario Draghi, ECB president, on Wednesday
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
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:
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:
Juncker, left, with Greek prime minister Alexis Tsipras at last month's EU summit in Brussels
The Greek daily To Vima has a nice scoop this afternoon about a document they’ve been leaked purporting to be a new proposal from Jean-Claude Juncker, the president of the European Commission, on how to break the standoff between Athens and its creditors.
According to the To Vima report, the plan envisions a deal with Greece that completely cuts out the International Monetary Fund and releases about €5bn in aid to Athens from three different sources: the €1.8bn remaining in the EU’s portion of the current bailout; €1.9bn in profits from Greek bonds purchased by the European Central Bank back in 2010; and another €1.3bn or so in additional Greek bond profits the ECB will get in July.
In exchange, Greece would agree to adopt a relatively short list of economic reforms that are significantly narrower from those being sought by the IMF and a German-led group of hardliners within the eurozone.
The Commission’s spokeswoman responsible for economic issues, former Reuters correspondent Annika Briedthardt, has already distanced the Commission from the document, saying in a tweet that she’s not aware the proposal actually exists:
Other commission officials are similarly playing down its importance. “We have many documents,” said one, only half-jokingly.
Although nobody is admitting the provenance of the document, what it appears to be is one in a series of proposals going back and forth between the Commission and Athens in an effort to find common ground, rather than a full-blown “Juncker Plan” to cut the Gordian Knot. 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
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