16 February 2015

“That escalated quickly”, as Ron Burgundy might have put it.

After a relatively quiet weekend and some optimistic tones – albeit mainly from the Greek government rather than the rest of the Eurozone – tonight’s Eurogroup meeting of Eurozone finance ministers was broken up after only a couple of hours. Throughout the entire Eurozone crisis we have not seen a finance ministers’ meeting going so badly.  In fact, at one point the talks descended into outright farce.

Greece’s questionable negotiating tactics

According to numerous reports the Eurogroup presented the Greek Finance Minister Yanis Varoufakis with a draft statement early into the meeting. However, the statement provoked outrage amongst the Greek camp with Greek officials proceeding to immediately leak the statement to the press and slam it as “unacceptable”, “unreasonable” and adding that a deal would be impossible under these terms.

In a strange turn of events Greek officials were concurrently briefing and commenting to the press while negotiations were meant to be ongoing. This prompted confusion amongst the other Eurozone members. In the end the meeting was halted and then called off with no agreement and without Greece even presenting any counter demands or proposals.

It was all rather surreal and seems to highlight some of the naivety or impatience of the new Greek government. While leaks are common place in Brussels and we’re all for transparency, but leaking things in real time and coupling it with hostile commentary does not seem a particularly effective or amicable way to negotiate. This does not bode well for the future negotiations. So far the two sides can even find a way to make the negotiating and governance styles compatible let alone their actual policy proposals. There is a huge gap to bridge.

Eurogroup reveals its hardball strategy

That said, Greece should not take all the blame for this breakdown in negotiations. The Eurogroup position does also seem a bit strange. Looking over the leaked draft it included phrases such as:

“The Greek authorities have expressed their strong commitment to a broader and deeper reform process.”

“The Greek authorities have indicated that the intend to successfully conclude the programme taking into account the new government’s plans. In this context we intend to make best use of the existing built-in flexibility in the current programme. The Greek authorities gave their firm commitment to refrain from unilateral action.”

“We also agreed that the IMF would continue to play its role in this new arrangement.”

It’s clear to anyone that has been following the negotiations and the Greek election campaign that such phrasing would certainly be rejected by the Greek government. This raises the question as to why the Eurogroup bothered to put forward something which they knew would be rejected and probably anger the Greek delegation.

What happens next?

In the end, it seems as if the Eurogroup is beginning to play hardball of its own. The press conferences made clear that the request for an extension of the current programme is basically a red line for all Eurozone members. Negotiations will not continue until it does. The Greek government now faces a pretty tough choice. It is looking increasingly alone and the best outcome it can probably hope for in the short term is getting some favourable phrasing or wording in the extension. Whether or not this will fly with the hard-line left-wing of the Syriza party or with the general public is another question altogether.

The dates to watch now are:

Wednesday 18 February 2015 – the ECB will once again review the Emergency Liquidity Assistance which is keeping Greek banks afloat. Even if it continues to sanction it, not raising the limit could raise pressure on the banks as deposit outflows continue. This Wednesday will also see the first round of the Greek Presidential election with the government keen to get it out of the way to move onto more pressing concerns.

Friday 20 February 2015 – this is the deadline set by the Eurogroup for when Greece has to request an extension by and may see another meeting called, provided Greece makes a request.

Friday 28 February 2015 – the real hard deadline when Greece’s current bailout ends and it faces being cut adrift with no backstop and possible no access to ECB funding.

****Update 16 February 2015 20:15

Greek Finance Minister Yanis Varoufakis has just finished giving his own press conference. He struck a very different and more optimistic tone than everyone else. Importantly, he said that, before the communication (mentioned above) was presented, an earlier version was drafted which he had agreed to sign. This included a four month extension with some conditionality to allow for more negotiations. However, this was then changed and the “nebulous concept” of “some flexibility” was introduced, which Greece objected to.

Again somewhat worryingly a trend is emerging in which Greece seems to have a very different version of events to almost everyone else after these meetings. Its hard to pin down who is right and how events actually took place. Nevertheless his tone suggested a willingness to sign some for of an agreement on an extension, although it will need to be carefully worded. Much of the rest was the usual posturing but it will be important to see first if this draft was a realistic option and, if so, secondly why it was dropped and who forced the change in Eurogroup position. As noted above though, whoever motivated the change its clear the entire Eurogroup is standing united behind its current position and that includes some countries (such as Italy and France) who would be expected to strike a concilliatory tone. That should really worry Syriza.