19 February 2015

UPDATE (18:15) – Greek letter is “a Trojan horse”, German officials say

The flow of leaks by Greek authorities just doesn’t stop. The latest document thrown into the public domain features the remarks made by German officials at today’s meeting of the Euro Working Group (EWG) with regard to Greece’s letter requesting a bailout extension.

The comments shed some more light on what Germany is objecting to. Seen from Berlin, the request from Athens “represents a Trojan horse, intending to get bridge financing and in substance putting an end to the current programme.”

One of the main concerns for Germany is that the new Greek government unilaterally rolls back the reforms passed by its predecessor (Greek Prime Minister Tsipras basically announced that his cabinet would be doing just that with his speech in the Greek parliament on Tuesday).

Germany is also sceptical of extending for a further six months the availability of €10.9 billion of EFSF bonds currently held by the Hellenic Financial Stability Fund (HFSF). This money can be used to recapitalise and resolve Greek banks. However, German officials have argued that Greek banks successfully passed last year’s stress tests – so it’s not entirely clear why these funds would still be needed over the six-month extension period.

You can read the German remarks in full below.

UPDATE (17:40) – French PM: Solution on Greece is possible, and very quickly

Some optimism from French Prime Minister Manuel Valls. He just told French MPs:

France is acting and will act until the end so that Greece can keep its place within this Europe.

I take the latest declarations and decisions of the Greek Prime Minister writing to Europe as the very encouraging sign that a solution is possible, and very quickly.

Incidentally, Valls is about to face a vote of confidence in the lower house of the French parliament, the National Assembly. A bit of a side-show today, but you can find more details here.

UPDATE (17:15) – Phone call between Tsipras and Merkel

According to Greek public broadcaster NERIT, Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel spoke over the phone earlier this afternoon. No prize for guessing what the call was about.

UPDATE (16:15) – Greek government remains optimistic

Greek Deputy Prime Minister Yannis Dragasakis has just tweeted that he believes “all the conditions are there” for a “mutually beneficial transition agreement” to be reached at tomorrow’s meeting of Eurozone finance ministers.

UPDATE (15:30) – Belgium: Greece has not addressed Eurozone concerns

While commending Greece for putting something on the table, a spokesman for Belgian Finance Minister Johan Van Overtveldt has pointed out that Athens had not sufficiently addressed the concerns expressed by the rest of the Eurozone. Here’s the full quote:

The Greek demand for an extension of the programme is the only possible step. This had to be taken. We have received the request, and will study it. But at first reading it appears that the concerns of the Eurogroup have not been addressed.

Belgian Finance Ministry spokesman, 19 February 2015

UPDATE (15:10) – Split in Germany’s Grand Coalition?

Sigmar Gabriel, German Vice Chancellor, Economy Minister and leader of the SPD, Angela Merkel’s coalition partner, has been striking a somewhat more conciliatory tone on Greece.

From Berlin, DPA reports that Gabriel said,

The written offer of the Greek government to negotiate the continuation of the reform programme is the first step in right direction.

We should use this new attitude by the Greek government as a starting point for negotiations, and not publicly reject them beforehand.

Sigmar Gabriel, German Vice Chancellor, 19 February 2015

Gabriel added that Eurogroup Chairman Jeroen Dijsselbloem and the European Commission should be given the chance to enter serious negotiations with Greece before writing off the proposal from Athens. He added that “it’s too early” to assess the chances of a deal being concluded successfully.

UPDATE (14:20) – Tough talk from Bratislava

Slovakia’s Prime Minister Robert Fico has pulled no punches in this interview just published by The Financial Times. Some interesting quotes:

It would be impossible to explain to the public that ‘poor’ Slovakia…should compensate Greece. To explain to people that we have to give money to Greece for their salaries and pensions? Impossible. Impossible.

It is not possible that on one hand they [the Greek government] want to cut debt or they want, for instance, to prolong loans. And at the same time they declare that they will give energy free of charge to people. Or give accommodation free of charge to people. It is not possible.

On the possibility of Greece leaving the euro, Fico said:

Europe is better prepared for shocks. Everyone knows we have solutions, and that even exit of Greece from the Eurozone wouldn’t be so dangerous as it would have been two, three or four years back.

UPDATE (14:00) – Italian Finance Minister: We must give signal that euro is irreversible

The first excerpts of an interview given by Italian Finance Minister Pier Carlo Padoan to Italian magazine L’Espresso have just been published. The write-up suggests that the interview took place today, although it is not clear whether that was before or after the latest news on Greece broke.

Anyway, here’s what Padoan had to say about Greece:

 The Greek government has put on the table a demand that must be taken seriously: take Greece out of a long period of crisis. In order to do so, Greece must transform itself structurally, and become more dynamic with a medium-term programme. Italy supports this demand. But in order to get to this point, one needs to go through a delicate transition phase where one needs to decide what to do with previous commitments and how to design the new ones. One must give the signal that the euro is irreversible. If a country were to exit, there would not only be one country less in the Union, but the euro would be transformed into a mechanism that can be undone. A mechanism different from the single currency.

L’Espresso – Pier Carlo Padoan: “La ripresa sta arrivando,” 19 February 2015

UPDATE (13:45) – Leader of Germany’s anti-Euro party: Introduce parallel currency in Greece

Bernd Lucke, leader of Germany’s anti-Euro Alternative für Deutschland (AfD) has been advocating the introduction of  a parallel currency in Greece.

Lucke said that all non-cash payments in Greece should now be handled in “New Drachma”, but that the Greek Government must guarantee that bank deposits held in euros should not be touched with the introduction of a parallel currency, in order to prevent a bank run. Here’s the full quote from Lucke:

The Eurozone must now immediately take concrete measures to prepare for an orderly exit of Greece from the euro to avoid a collapse of the Greek financial system, and harmful repercussions for other European states. With the right preparations, a Greek exit from the currency union is possible.

Bernd Lucke, leader of AfD, 19 February 2015

UPDATE (13.35) – ‘Schäuble smashes Athens request’

Germany’s ‘No’ is dominating the front pages of all major German papers. Another strong headline from Stern: “Schäuble smashes Athens request”.

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UPDATE (13:30) – What would Germany like to see changed in the Greek letter?

There’s now plenty of speculation over what in the letter Germany wants to see change. This sentence, for example, may be seen in Berlin to give Athens too much room to backtrack on spending commitments:

To agree the mutually acceptable financial and administrative terms the implementation of which, in collaboration with the institutions, will stabilise Greece’s fiscal position, attain appropriate primary fiscal surpluses, guarantee debt stability and assist in the attainment of fiscal targets for 2015 that take into account the present economic situation.

Similarly, the following phrase could be seen as giving the Greek government plenty of discretion to define what constitutes ‘undermine…economic recovery’:

To ensure, working closely with our European and international partners, that any new measures be fully funded while refraining from unilateral action that would undermine the fiscal targets, economic recovery and financial stability.

Generally, while the Greek letter leaves future negotiations quite open, it does commit those that sign up to it, to certain parameters mentioned above. This may have prompted German concerns that the negotiations would not take place within the framework it desired.

UPDATE (13:15) – Top story on Bild homepage right now: ‘Germany says No’


150219_Bild itemprop= This is the top story on the homepage of German tabloid Bild at the moment. The headline speaks for itself.

UPDATE (12:30) – Germany rejects Greek request due to lack of substance

Germany has rejected the Greek request for a bailout extension. A German Finance Ministry spokesman said the letter sent by Athens “is not a substantive proposal for a solution”.

See below for our initial analysis of the Greek letter.

Analysis (12:15) – Open Europe’s Raoul Ruparel appeared on BBC News discussing the situation in Greece

Analysis (12:00) – Greek government folds this hand, but long-term game of poker with Eurozone continues

As we noted several times on this blog (see here and here), Greece’s new SYRIZA-led government had the weaker hand in negotiations with its creditors – and was therefore always likely to fold first. Athens has this morning requested a six-month extension of its agreement with the Eurozone. For Brussels jargon lovers, this is called the ‘Master Financial Assistance Facility Agreement’ (MFAFA).

Courtesy of Reuters, we have seen a copy of the letter sent by the Greek government to Eurogroup President Jeroen Dijsselbloem. Net of some changes in wording (e.g. ‘the institutions’ instead of ‘the Troika’), the letter suggests the Greek government has capitulated in all but name.

The document reads:

The Greek authorities honour Greece’s financial obligations to all its creditors as well as state our intention to cooperate with our partners in order to avert technical impediments in the context of the Master Facility Agreement which we recognise as binding vis-à-vis its financial and procedural content.

The Greek authorities are now applying for the extension of the Master Financial Assistance Facility Agreement for a period of six months from its termination during which period we shall proceed jointly, and making best use of given flexibility in the current arrangement, toward its successful conclusion and review on the basis of the proposals of, on the one hand, the Greek government and, on the other, the institutions.

By requesting this extension, Greece aims to:

  • Start technical negotiations on a new long-term deal with the EU and the IMF;
  • Renegotiate its primary surplus targets (currently set at 3% of GDP for this year and 4.5% of GDP from next year on). We also believe these are overly ambitious;
  • Get the ECB to start accepting again Greek bonds as collateral from Greek banks in return for liquidity;
  • Discuss further debt relief measures.

The Greek government also commits itself to “refraining from unilateral action that would undermine fiscal targets, economic recovery and financial stability” during the next six months.

In other words, the Greek government has folded this hand and agreed to essentially stick to the current bailout programme – at least in the short term. Importantly, the Greek letter does not seem to include any specific wording around changing the conditionality in the agreement. As the original MFAFA shows, the loans remain linked to the full implementation of the conditions attached to the bailout – and set out in the Memorandum of Understanding. Absent such changes, the bailout agreement would have to be fully complied with.

Eurozone finance ministers are due to meet tomorrow in Brussels to discuss the Greek request. The long-term game of poker between Greece and its Eurozone partners is far from over.