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
Greek finance minister Stournaras, left, with IMF chief Lagarde at Monday's eurogroup meeting
In an interview with five European newspapers published Thursday, Jeroen Dijsselbloem, the Dutch finance minister who heads the committee of eurozone finance ministers, said his eurogroup will need to look at whether Greece needs additional bailout aid in April 2014.
This will surprise some members of the troika, particularly the International Monetary Fund, who were pushing for a reckoning much more quickly amid signs the €172bn second Greek bailout is running out of cash much sooner than anticipated.
Once the €3bn in EU aid contained in a new €4.8bn tranche approved this week is paid out, total EU outlays will reach €133.6bn — out of a total €144.6bn committed (the IMF puts up the rest). So just €11bn left in the EU’s coffers. Further evidence that cash is leaving too quickly is contained in the latest report on Greece’s rescue prepared by the European Commission, which our friends and rivals at Reuters obtained and helpfully posted for everyone to see.
As Brussels Blog noted earlier, there is no more EU cash left in the programme for the second half of next year, even though the bailout was originally supposed to contain enough until the end of 2014. But this chart in the new report makes clear that cash may run out even quicker than that: Not only is the third and fourth quarters of 2014 completely unfunded, now there’s only €1.5bn left for the second quarter, too. Read more
Greek prime minister Antonis Samaras, centre, holds a cabinet meeting this week.
Just how off track is Greece’s €172bn second bailout? When the FT reported that a new €3bn-€4bn financing gap had opened up in the programme, EU and International Monetary Fund officials went out of their way to insist there wasn’t a gap at all.
“There is no financial gap. The programme is fully financed for at least another year, so there is no problem, on the premise that we reach a final agreement on the review in July,” said Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup.
IMF spokesman Gerry Rice weighed in with a written statement: “If the review is concluded by the end of July 2013, as expected, no financing problems will arise because the program is financed till end-July 2014.”
Notice the caveats, however. Both Dijsselbleom and Rice say there won’t be a shortfall – as long as the IMF is able to distribute its next €1.8bn aid tranche before the end of July. Why? Because of the new financing gap, which means the Greek programme essentially runs out of money in July 2014. The IMF must have certainty that Greece is fully financed for 12 months or it can’t release its cash, so after July, it must suspend its payments. Read more
Finance ministers MIchael Noonan of Ireland, center, and Vito Gaspar of Portugal, right, with the EU's Olli Rehn at January's meeting.
After Greece last year won a restructuring of its €172bn rescue that included an extension of the time Athens has to pay off its bailout loans, Ireland and Portugal decided they should get a piece of the action, too.
So at the January meeting of EU finance ministers in Brussels, both Dublin and Lisbon made a formal request: they’d also like more time to pay off their bailout loans. According to a seven-page analysis prepared for EU finance ministry officials a few weeks ago, though, the prospect is not as straight forward as it may seem.
The document – obtained by the Brussels Blog under the condition that we not post it on the blog – makes pretty clear that while an extension might help smooth “redemption humps” that now exist for Ireland (lots of loans and bonds come due in 2019 and 2020) and Portugal (2016 and 2021), it’s not a slam dunk case. Read more
Greek prime minister Samaras takes questions after last month's EU summit in Brussels.
When eurozone leaders finally reached agreement on an overhauled €173bn bailout of Greece last month, Antonis Samaras, the Greek prime minister, declared the prospect of his country leaving the euro to be over: “Solidarity in our union is alive; Grexit is dead.”
But late on Friday, someone decided to resurrect it: the International Monetary Fund. In its first report on the Greek bailout since last month’s deal, the IMF was unexpectedly explicit on the risks that Greece still faces, including the potential for full-scale default and euro exit.
In fact, the 260-page report includes a three-page box explicitly dedicated to examining the fallout if Greece were to be forced out of the euro, which we’ve posted here. The box, titled “Greece as a Source of Contagion”, concludes that while the eurozone has improved its defences, it still remains hugely vulnerable to shocks that would come following Grexit. Read more
IMF chief Christine Lagarde arrives at Monday's eurogroup meeting where Greek deal was struck.
When eurozone finance minsters announced their long-delayed deal to overhaul Greece’s second bailout early Tuesday morning, there was much they didn’t disclose.
The most glaring was how big a highly-touted bond buyback programme would be, a question dodged repeatedly at a post-deal news conference. But there were other things that were left out of a two-page statement summing up the deal, including how much the European Central Bank was making on its Greek bond holdings, profits that will be returned to Athens as part of the agreement.
It turns out, those were not the only – or even the biggest – unanswered questions left after the early-morning deal. As we report in today’s dead-tree edition of the FT, ministers failed to find enough debt relief measures to get to the purported Greek debt target of 124 per cent of economic output by 2020, far above the 120 per cent target set in February.
In reporting our story, we relied heavily on a leaked chart that we got our hands on (which we’ve linked to here) that lays out in great detail the assumptions built into the new programme. A quick review of the chart comes after the jump… Read more
Germany's Schäuble and France's Moscovici after the 1st attempt this month to reach a Greek deal.
Eurozone finance ministers have begun arriving at the EU’s summit building in Brussels for their third meeting in two weeks to try come up with a deal to get Greece’s overweening debt levels back down to levels that can credibly be considered sustainable.
For those who need a reminder of where the talks stand, we offer a handy official chart we got our hands on (see it here) which shows just how big the debt gap is – a gap that must be closed to finalise the overhauled programme and release the long-delayed €31.3bn in bailout assistance.
The key thing to remember is the last time the eurozone revamped the Greek programme in February, they agreed that it would return Athens to a debt level of 120 per cent of economic output by 2020. This has become a de facto benchmark.
As the chart shows, without any debt relief, Greece’s debt is now expected to be at 144 per cent by 2020 and the entire debate today (and possibly tonight) will be on who will give up some share of Greek debt repayments to bring that down. Read more
Greek finance minister Yannis Stournaras, left, and IMF chief Lagarde at Monday's meeting.
It may be incomplete and its conclusions subject to debate, but on Monday night eurozone finance ministers got a draft copy of the much anticipated troika report on Greece. As we report online, there’s not much in it we didn’t already know – including the fact Greece will need as much as €32.6bn in new financing if the programme is extended through 2016.
But the language in the report is, as usual, pretty revealing. We’ve posted a copy of the draft here. It makes clear that eurozone creditors will be leaning on Greece pretty heavily for the foreseeable future. This, in spite of the fact the Greek parliament barely passed €13.5bn in austerity measures last week amidst serial defections form its governing coalition.
The most glaring is that Athens will have to find an additional €4bn in austerity measures for 2015 and 2016, meaning the pain isn’t done yet. But it also implies there are some more shorter-term measures that haven’t been completed yet that the troika is expecting.
Greece has revamped its reform effort and fulfilled important conditions…. These steps, which have tested the strength and cohesiveness of the coalition supporting the government, leaving also some scars therein, significantly improve the overall compliance, provided some remaining outstanding issues are solved by the authorities.
Greek finance minister Stournaras, left, and prime minister Samaras during last night's debate.
Tonight’s meeting of eurozone finance ministers was, as recently as a week ago, thought to be the final bit of heavy lifting needed to complete the overhaul of Greece’s second bailout. After all, Athens has done what it promised: it passed €13.5bn of new austerity measures on Wednesday and the 2013 budget last night.
But EU officials now acknowledge that the Brussels meeting of the so-called “eurogroup” will not make any final decisions on Greece amid continued debate over how much debt relief Athens needs – and how fast it should come. That means a long-delayed €31.3bn aid payment will be delayed yet again.
One EU official said that despite hopes, the key part of a highly-anticipated report from international monitors – known as the “troika report” because it is compiled by the European Central Bank, International Monetary Fund and European Commission – will not be ready in time for tonight’s meeting: the debt sustainability analysis, which remains a point of contention. Read more
A woman walks by Greek anti-bailout graffiti in central Athens earlier this week.
For those who really want to get into the nitty gritty of the revised Greek bailout, we’re also posting two other documents we got our hands on and used for today’s story on the nearly-completed deal in order to provide more detail on what the new rescue programme will look like.
The first document is an October 14 draft of the official “Memorandum of Understanding on Specific Economic Policy Conditionality”; the second is the “Memorandum of Economic and Financial Policies”.
Both are chock full of austerity and reform commitments Athens is making to get the bailout extension. But the second memorandum has far more detail on what kind of budget demands Athens is agreeing to. Although there are gaps where specific budget targets are to be included, page two and page nine give strong hints of where they are headed. Read more
Germany's Angela Merkel, left, with Greece's Antonis Samaras during her Athens visit.
With Athens and the so-called “troika” of international lenders close to a deal on an overhauled bailout that would extend the programme by two years, the focus today shifts to Brussels, where talks begin on round two of the revised Greek rescue: how to pay for it.
As we reported in today’s dead-tree edition of the FT, those talks will focus on how to fill a new financing gap of between €16bn-€18bn through 2016.
Although officials have toyed with a bond buyback programme – which would have reduced Greek financing needs by purchasing debt at current distressed prices and retiring the bonds – it now looks like they’re going to focus instead on what they’ve done in the past: lowering rates on bailout loans even further to scrape together extra money. Currently, Greece borrows at 1.5 per cent more than the cost of the cash to lenders. So there’s room to cut. Read more
IMF managing director Christine Lagarde, during this morning's news conference in Tokyo.
IMF chief Christine Lagarde’s declaration this morning that Greece should be given two more years to hit tough budget targets embedded in its €174bn bailout programme – coming fast on the heels of German chancellor Angela Merkel’s highly symbolic trip to Athens – are the clearest public signs yet of what EU officials have been acknowledging privately for weeks: Greece is going to get the extra time it wants.
But what is equally clear after this week’s pre-Tokyo meeting of EU finance ministers in Luxembourg is there is no agreement on how to pay for those two additional years, and eurozone leaders are beginning to worry that the politics of the Greek bailout are once again about to get very ugly.
The mantra from eurozone ministers has been that Greece will get more time but not more money. Privately, officials acknowledge this is impossible. Extending the bailout programme two years, when added to the policy stasis in Athens during two rounds of elections and a stomach-churning drop in economic growth, means eurozone lenders are going to have to find more money for Athens from somewhere. Read more
With the European Commission holding its final summer meeting on Wednesday, Brussels goes on holiday in earnest starting next week, with nothing on the formal EU calendar until a meeting of European affairs ministers in Cyprus on August 29.
But if whispers in the hallways are any indication, veterans of the eurozone crisis remain traumatised by last August, when some inopportune comments by then-Italian prime minister Silvio Berlusconi shook Europe from its summer slumber. Indeed, Maria Fekter, Austria’s gabby finance minister, has already speculated on the need for an emergency August summit.
Herewith, the Brussels Blog posts its completely unscientific odds on which of the eurozone’s smouldering crisis embers could reignite into an out-of-control summer wildfire, forcing cancelled hotel bookings and return trips to Zaventem. Read more
Antonis Samaras. Getty Images
Leaders have begun arriving at their party caucuses and one of the first to show up at the centre-right EPP gathering was Antonis Samaras, the New Democracy leader locked in a neck-and-neck fight to become Greece‘s next
prime minister. Read more
People pass Bank of Greece in Athens last week
Jitters over whether Greece will be forced out of the euro have turned the focus of policymakers in recent days on whether Greece is on the precipice of a bank run.
It’s no mere academic exercise; a full-scale bank run would force the European Central Bank and eurozone lenders to either pump in more money – without a new government in place, and no assurances Athens would live up to the rescue terms – or pull the plug on Greece’s financial sector.
Since a banking sector without a central bank would essentially force Greece back to the barter system, there would be few options left then for Athens to begin printing its own currency again. Essentially, the drachma would return through the back door.
As we reported in today’s dead-tree edition, senior eurozone officials responsible for monitoring the currency area’s banking system said the rate of withdrawals thus far falls short of a panic. But the International Monetary Fund’s recent report on Greece makes it clear that a slow-motion bank run has been under way for more than two years, with close to 30 per cent of deposits being pulled out since the end of 2009. Read more