Greece

In interviews on the sidelines of the Ambrosetti forum in northern Italy, economists Martin Feldstein and Hans-Werner Sinn say leaving the euro may be the only choice left for Greece. Former Spanish prime minister José María Aznar, though, urges peripheral countries to continue reforms.

Evangelos Venizelos, left, and Jutta Urpilainen, Greek and Finnish finance ministers, last month

The still-roiling dispute over Finland’s insistence on some sort of collateral to guarantee its portion of the new €109bn Greek bail-out only got slightly closer to resolution Friday, and more senior finance ministry officials – this time department deputies – will take up the issue Monday on yet another conference call.

As we reported last week, Friday’s teleconference mulled a proposal to broaden the collateral deal so that non-Finns can participate, and to have the Greek side put up non-cash assets instead of the current bilateral deal, which would have Athens put about €500m cash into a Finnish escrow account.

An official briefed on Friday’s call told Brussels Blog that a consensus appeared to be building around the non-cash plan, which would use Greek government shares in state-owned enterprises or “illiquid” real estate assets as collateral. But time is running short. Read more

Finland's prime minister, Jyrki Katainen, arriving at last month's emergency eurozone summit.

UPDATE: Thanks largely to uncertainty caused by the Greco-Finnish deal, Greek 10-year bonds dropped preciptiously Wednesday, with yields again close to 18 per cent — right where they were before July’s bail-out agreement.

The ongoing dispute between Finland and other eurozone members over the side deal Heslinki struck with Greece as part of Athens’ new €109bn is beginning to make market analysts jittery.

For those unfamiliar with the controversy, Finland has insisted that it get collateral from Greece to guarantee its portion of the new bail-out, and last week struck a deal which would have Athens putting an estimated €500m into a Finnish escrow account. Other countries have begun to cry foul, however, asking why Finland should get special treatment. Talks between eurozone finance ministry officials are expected to resume via teleconference on Friday.

As we reported earlier this week, the Moody’s rating agency has already weighed in with its concerns, saying the Finnish deal could not only delay the Greek bail-out but calls into question eurozone support for all future bail-outs. But other market watchers are beginning to raise similar alarms. Here is a quick cross-section of views that we’ve seen in recent days. Read more

Greek finance minister Evangelos Venizelos visits the IMF in Washington earlier this week

In what appears to be an acknowledgement of the ongoing confusion in the financial markets over last week’s agreement on a €109bn Greek bail-out, the European Commission has just posted some very useful documents on its web page, which we highly recommend for those still trying to get their head around the deal.

Although they go a long way towards explaining things, the documents also reveal an interesting €7bn gap in the programme that’s worth highlighting. Our excavation of the missing €7bn is after the jump. Read more

Like most people who have been following the Greek debt crisis closely, we’ve been spending much of the last few days drilling down to figure out just what eurozone leaders agreed to Thursday night, since even market participants remain confused about certain elements of the deal.

For Brussels Blog, the key question was always the most straight forward one: how big is the hole, and how are you going to fill it? We found out how big the Greek hole was earlier this month, when the European Commission released a report that showed the gap in Greek financing between now and mid-2014 – a whopping €172bn.

But just how they are going to fill that hole has not been publicly acknowledged amidst the conflicting accounts of the plan’s details that emerged in the days since the summit ended. Thanks to a previously undisclosed document obtained by the Brussels Blog – and a little help from a big EU economic brain – we seem to have figured it out. Read more

Greek prime minister George Papandreou, at the end of Thursday's summit in Brussels

All eyes in Brussels will be watching the bond markets in the eurozone’s periphery this week,  particularly in Spain and Italy, where the danger of post-Greek deal contagion is most acute. After a brief relief rally after the bail-out package was agreed Thursday night, things have begun to look a bit shaky again.

Already, Moody’s this morning has joined Fitch in downgrading Greek bonds, citing the “substantial economic losses” Greek debt holders will incur under the plan. But it’s worth looking at a “special comment” Moody’s issued alongside the Greek downgrade, because there’s a bit of good news for European leaders in it. Read more

Josef Ackermann, CEO of Deutsche Bank

UPDATE: According to our crack team in Paris, Baudouin Prot, chief executive of BNP Paribas, is also in Brussels participating in the talks. Read more

Senior eurozone officials – including finance ministry negotiators in the “euro working group” and sherpas to all 17 presidents and prime ministers – have moved their pre-summit meeting in Brussels (originally scheduled for this evening) to 9am tomorrow, a sign they still need more time to hammer out a deal on a Greek bail-out ahead of Thursday’s much-anticipated emergency summit.

But as we reported in today’s paper, after the working group held a teleconference on Friday, the European Commission prepared a “policy options” paper outlining the possibilities they’re looking at (our worthy rivals at Reuters also got their hands on a copy).

As has become our practice, we thought we’d give Brussels Blog readers a bit more insight into what the leaked options paper had to say, after the jump. Read more

Greek taxis block Athens streets during a 48-hour strike. A similar Greek roadblock in Brussels?

If this morning’s media accounts are any indication, European leaders are still scrambling to come up with a deal on a second Greek bail-out ahead of Thursday’s emergency eurozone summit here in Brussels. Read more

Poul Thomsen, head of the IMF's misssion to Greece, during a visit to Athens in May

UPDATE: Here’s an interesting take on the same reports by our friends and rivals over at the Wall Street Journal.

As part of the Brussels Blog’s new mission to read brick-sized reports on eurozone bail-outs so you don’t have to, today we bring you the highlights of the 173-page International Monetary Fund review of the Greek crisis – which we reported on in today’s newspaper, but which has lots of other good details worth chewing over.

The first thing we like to turn to when getting these kinds of reports is the analysis of just how big the financing hole is for Greece – and how international lenders intend on filling it.

According to page 62 of the report (see the pdf here), the IMF has a slightly lower estimate of how big the Greek hole is than the European Commission: it believes Athens will need €103.4bn in new bail-out funds through 2014, while the Commission thinks it will be closer to €115bn.

Potentially more interesting, however, is how they propose to fill the hole. Read more

Greek prime minister George Papandreou

Almost lost in yesterday’s brouhaha over Standard & Poor’s warning about the latest proposal for bondholder participation in a new Greek bail-out was a report published by the European Commission that, for the first time, publicly detailed just how much money Greece will need in a new three-year rescue: €172bn.

We mentioned that eye-popping figure in our coverage this morning, but the 165-page report – a detailed overview of the Commission’s findings during the run-up to this month’s €12bn aid payment – is worth a more thorough review, since it contains a lot of interesting details on just what the Greek rescue programme looks like.

As the report makes clear, it’s important to note that €57bn of that €172bn will be covered by Greece’s existing bail-out, which was scheduled to run through mid-2013. Of the remaining €115bn, Greece has vowed to raise €30bn on its own through a massive privatization effort. That leaves eurozone governments and the International Monetary Fund on the hook for the remaining €85bn. Read more

If the Greek crisis has taught us anything over the past few weeks it’s that going from a bail-out back into the financial markets is hard, and any rescue programme should be very conservative when it comes to estimating how much private-sector borrowing a bailed-out country will be able to do.

The recent scare occurred because a Greek gap opened in March 2012, when the original €110bn bail-out programme envisioned Athens dipping back into the bond market. Everyone now acknowledges this is impossible, particularly with 10-year Greek bonds still over 16 per cent, despite Wednesday’s rally driven by the successful Greek parliamentary vote on austerity measures.

As our friends and rivals at the Wall Street Journal have pointed out, detailed reports on Ireland show its programme has become much more conservative, with only about €3.4bn in private-sector borrowing called for in 2012 (originally it was €12.3bn; Greece was supposed to raise €15.9bn in the first quarter of 2012 alone). Read on for our first look at Portugal’s financing assumptions. Read more

Olli Rehn, the European commissioner for economic and monetary affairs

The debate in the Greek parliament has begun, and pressure is building ahead of the key meeting of eurozone finance ministers on Sunday which – in the event of parliament’s passage of a new €28bn austerity plan – will both approve a quick €12bn in aid to Athens and set up the outlines for second Greek bail-out package. Read more

UPDATE: The summit has broken up for the evening, and they’ve published the final conclusions on Greece. Only minor tweaks from draft version. Complete statement can be read here.

When the summit of European leaders began this evening, the big hole in the draft conclusions circulated to Brussels diplomats was language on Greece. Brussels Blog has now obtained a copy of that section, and though it contains few surprises, it does raise some key points that are worth highlighting.

First is the pressure they are placing on Antonis Samaras, the Greek opposition leader, to back the €28bn in austerity measures to be voted on next week. Officials say Samaras got a firm lecture from centre-right heads of government this afternoon during a pre-summit caucus in Brussels – and one official said he gave as good as he got.

In the draft conclusions, the leaders are more diplomatic, but still clear: they want cross-party support for the package, despite Samaras’ public declaration that he won’t back it. A critical €12bn aid payment is contingent on passing the package, and Athens will default on its debt if they don’t get the loan by mid-July. The section on the need for broad political backing is after the jump: Read more

Over at the largest pre-summit gathering, the centre-right European Peoples’ Party which is meeting across from the Belgian royal palace, the most highly-anticipated arrival was Antonis Samaras, the Greek opposition leader.

Heading into the caucus, Samaras repeated what he said in today’s Financial Times: that although he supports reform efforts, he can’t back the package proposed by the ruling Socialist government. Read more

Acting IMF chief John Lipsky arrives for EU meetings in Luxembourg on Monday

Did the International Monetary Fund really mean to take a swipe at Europe’s continued bickering over how to deal with private holders of Greek bonds? According to John Lipsky, the Fund’s acting managing director, the tough language may have been the result of an editing hiccup. Read more

Greek riot police confront protestors in front of parliament in Athens on Wednesday

Just as one Greek crisis appears to be dissipating, another one flares up that risks pushing Athens into default in a matter of weeks. For those struggling to follow along, here’s another one of our quick primers – and a guide for what to watch for in the coming days.

For much of the last month, officials have been fretting that unless they can piece together a new €120bn bail-out for Greece by next week, Athens would run out of money. The first default by an advanced economy in 60 years would ensue, potentially wreaking havoc across the eurozone.

The reason behind the fear was a complicated domino effect that started with the International Monetary Fund: the IMF was going to withhold its €3.3bn in aid due this month unless the European Union could ensure Greece could pay its bills for another year. Greece, however, is going to be unable to pay its bills next year without a new bail-out. Read more

Greek finance minister George Papaconstantinou, right, with his German and Spanish counterparts before the start of Tuesday's meeting.

As expected, Tuesday evening’s meeting of eurozone finance ministers to discuss a new Greek bail-out produced few results, other than an agreement to meet again Sunday evening. That session will be a last-gasp effort to reach a consensus before Monday’s much-anticipated formal ministerial meeting, where officials are hoping a deal can be finalised.

But as we reported in today’s paper, the assembled ministers got a pretty dire picture of what would happen if they decided to proceed with a German-backed plan to get private investors to take part in the bail-out by swapping most existing Greek bonds with new bonds that wouldn’t have to be repaid for seven years.

To give Brussels Blog readers more insight into the thinking of the European Commission, which produced the memo outlining the scenario for eurozone ministers – titled “Options for private-sector involvement in financing a macro-economic adjustment programme for Greece: Note for the Europgroup” – we thought we’d post a few relevant exceprts. Read more

Monday night, the work of EU finance ministers meeting in Brussels today to unravel the Greek debt crisis got a whole lot harder: Standard & Poor’s downgraded Greek sovereign bonds to just a few notches above default.

If ministers were hoping to “re-purpose” Greek debt in a way that would prevent the eurozone’s first-ever default, S&P is basically telling them: Good luck; we don’t believe you can do it.

But a closer reading of the S&P report may give the eurozone leaders an out: the credit rating agency seems to have ignored the possibility that the new Greek bail-out will opt for a roll-over of Greek bonds, a plan backed by the European Central Bank, instead of a debt swap, which is supported by Germany. Read more

A decision about how to keep Greece solvent is coming to a head, and for those keeping tabs, here’s a quick primer on what to watch for in the next few days. Read more