Greece's Lucas Papademos, flanked by Greek and French finance ministers, at Monday's meeting.
The 10-page Greek debt sustainability report that we obtained Monday night is filled with very sobering conclusions that we highlighted in our news story that’s now up on the web.
But the document – prepared by analysts in the so-called “troika” of international lenders, the European Central Bank, European Commission, and International Monetary Fund – is filled with so much interesting data, that we thought we’d give it further airing here at the Brussels Blog.
The report, marked “strictly confidential” and dated February 15, starts with a page-long summary that includes arguably the most revealing paragraph in the entire document: Read more
Lead negotiators for Greek bondholders, Charles Dallara and Jean Lemierre, outside the Greek prime minister's office last month.
This morning, the dead tree edition of the FT has a story based on some leaked documents we got our hands on regarding the massive Greek debt restructuring that needs to begin in a matter of days.
The documents make clear the schedule is slipping dangerously; the meeting of eurozone finance ministers tonight that has been cancelled was supposed to approve the launch of the restructuring so the process can begin Friday. The whole thing needs to be done before a €14.5bn Greek bond comes due for repayment March 20. Time is running out.
But perhaps more interestingly is the fact that eurozone finance ministries asked for financial advice from New York financial advisors Lazard and legal advice from the New York firm of Cleary Gottlieb Steen & Hamilton about what the consequences would be if they launched the debt restructuring – but were forced to scrap it after it had started.
As is our tradition, we thought we’d give Brussels Blog readers a bit more on what the documents had to say. Read more
Dutch EU Commissioner Neelie Kroes: "No ‘man overboard’ if we lose someone from eurozone."
[UPDATE 2] Dutch finance minister Jan Kees de Jager was asked about Kroes’ comments during the government’s regular parliamentary question time Tuesday. De Jager said that while the contagion risk in the eurozone has decreased over the last year because of measures taken in Brussels, a Greek exit would still be very costly.
[UPDATE] In response to Kroes’ comments, Olivier Bailly, an EU Commission spokesman, today insisted its policy towards keeping Greece in the euro has not changed.
José Manuel Barroso, the European Commission president, may have promoted his economic chief Olli Rehn to vice president last year with new responsibilities for managing the eurozone crisis, but in recent days a growing number of other commissioners seem to be elbowing in, opining on whether Greece will leave the single currency.
On Monday came an interview with Greece’s own commissioner, Maria Damanaki, where she told the newspaper To Vima tis Kyriakis that contingency plans for Greece leaving the euro were being “openly studied”. “Now they’re not simply scenarios,” said Damanaki, whose portfolio is fisheries. “They are alternative plans that are being openly studied.” Rehn’s spokesman insisted that no such plans were afoot within the commission, although he acknowledged some in the private sector were making such calculations.
This morning, however, comes another broadside, this time from Neelie Kroes, the European commissioner from the Netherlands – one of the eurozone’s remaining triple A-rated countries where support for more aid to Greece is dwindling. Read more
Greek government employees protest against austerity measures in Athens on Friday.
As the week comes to an end, we seem no closer to a deal to sort out Greece’s troubles than we were when it started. With rumours of a deal a daily (hourly?) occurrence, and questions over whether eurozone finance ministers will meet Monday to sign off on a new €130bn bail-out, Brussels Blog thought we’d revive our popular “viewer’s guide to the Greek crisis” to lay out the state of play for those not following the negotiations on an hourly basis.
The best way to think of what is currently happening in Greece is to look at it as the proverbial row of dominoes that must fall before a deal is complete. Unless they all fall in order, Athens is at risk of missing payment on a €14.5bn bond due March 20, which could lead to a messy default and renewed chaos across the eurozone.
The first domino has basically been complete since last weekend: a deal with private holders of Greek bonds to wipe off €100bn from Athens’ €350bn debt load.
As we reported on Monday, a consortium of private Greek debt holders has agreed to accept new bonds that are be worth half the face value of their current bonds (including a one-time cash payment). The new bonds would have low interest rates that would reduce their value even more. According to our sources, the “haircut” in the long-term value will be just over 70 per cent.
But there are two more dominoes that must still fall: Greece must (yet again) agree to new austerity measures being urged by the “troika” of international lenders –European Commission, European Central Bank and International Monetary Fund – and then Brussels must decide on how to fund any shortfall. Read more
Anti-austerity protesters in Athens hold up a Greek flag that says "not for sale" on Friday.
Thanks to some help from the European Commission, we have a bit more clarity on where European leaders will be spending the new €130bn in Greek bail-out aid. But the new data we received makes all the more clear that a huge amount is dependant on the still-to-be negotiated details of the 50 per cent Greek bondholder haircut deal, which may not be completed until the end of the year.
Just to remind readers where the confusion lies, of the €130bn in new funding, only €30bn was officially earmarked in last week’s summit communiqué – and that money will go for “sweeteners” to current bondholders so they’ll participate in a bond-swap programme. If they are going to take a 50 per cent cut in the face value of their bonds, they insisted on getting something else in return, and this was the price.
Of the remaining €100bn, fully €30bn will go to bank recapitalisations, not then €20bn we assumed last week. Although EU banking authorities have called for €30bn in new capital for Greek banks, officials tell us this is in addition to the €10bn provided in the first €110bn Greek bail-out.
Which leaves us with only €70bn to actually run the Greek government for the next three years. How did European authorities come to this number? That requires even more detective work, after the jump. Read more
Greek prime minister George Papandreou, right, with his counterparts at Wednesday's summit
Thursday’s early-morning deal on a new €130bn Greek bail-out is different in magnitude and in kind from the July €109bn programme it replaces, but in one respect they’re very similar – European officials have had a hard time explaining what, exactly, the money is for.
The one thing they have announced is that €30bn of it will go to so-called “sweeteners” to convince Greek bondholders to accept 50 per cent haircuts on the face value of their bonds.
How this would work has yet to be negotiated, but in the July plan, such sweeteners were used to create a collateral pool for new, gold-plated Greek bonds that could be used in a bond swap programme. In order to convince bondholders to trade in their current bonds that are about to come due for new bonds that don’t come due for 30 years, these new bonds needed to be extra safe. The collateral “sweeteners” were the means to do that.
How is the remaining €100bn in the new €130bn Greek bail-out going to be spent? A little detective work after the jump. Read more
During last week’s gathering of European Union finance ministers in Luxembourg, prime minister Jean-Claude Juncker, who chairs the group of euro finance chiefs, announced what the FT had already reported: lenders were going to make “technical revisions” to a key part of Greece’s second €109bn bail-out.
The reopening of the second bail-out was probably inevitable, given Greece’s steadily deepening recession, and the part that needs changing is known as the package’s PSI, or “private sector involvement”. PSI a complicated series of bond swaps and roll-overs which in theory will get current Greek bondholders to delay repayment on €54bn in debt that was to come due between now and mid-2014. Read more
Finland's finance minister Jutta Urpilainen, left, and prime minister Jyrki Katainen
Senior European officials had hoped to finally bang out a deal today on Finland’s demand for collateral from Athens in order to participate in Greece’s new €109bn bail-out. But fellow Brussels Blogger Josh Chaffin reports in from Wroclaw, Poland, that the Finns don’t seem to be in a mood for compromise.
“I think we are going to debate about it, but unfortunately I don’t see that we can find a solution tonight,” Jutta Urpilainen, the Finnish finance minister, said heading into the meeting of her eurozone counterparts in Wroclaw. “We continue to negotiate. I’m optimistic that we can find a solution that everybody can accept.”
European Union officials have grown increasingly exasperated with the Finns, who made the demand for collateral part of the new governing coalition agreement reached after April’s indecisive national elections. Read more
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