Eurogroup Gives Greece 10 Day Ultimatum: Apply For Bailout Or Grexit - page 13

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GREECE: 'Fasten your seat belts'

The deadline for a deal to resolve Greece's ongoing drama seemed to be pushed back last week. But new stresses could appear as early as this week if there is no noticeable progress on the talks.

Last week Greece decided to combine the four debt payments it owed to the International Monetary Fund (IMF) in June — worth about €1.5 billion ($1.66 billion, £1.09 billion) collectively — into one, which will be due at the end of the month.

That delayed for three weeks the payment that was owed Friday and meant Athens could wait longer for a bailout deal. But at least according to some analysts, that will be little to no relief in the tense talks.

Much of the timeline actually remains the same, as Bank of America Merrill Lynch researchers pointed out in a note, titled "Brinkmanship in Greece: fasten your seat belts," on Monday morning.

Previously, the hard deadline for approval of both Greek and other European parliaments was the end of June — and that's still true now.

Here's BAML FX strategist Athanasios Vamvakidis:

Greece and its creditors will have to finalize the deal by the end of this week, the Greek parliament will have to approve the deal the following week, and the European parliaments will have to approve it during the last week of June (assuming away problems with the summer recess). Such a deal will have to include at least €5bn to repay the IMF by June 30 and the ECB bonds that mature on July 20 — to cover all IMF and ECB payments during the summer, Greece needs about €10bn.

When it's put like that, the three weeks left don't seem like such a long time. Last week's dramatics suggest that the two sides are still far from a deal, with each presenting proposals and counterproposals that disregard the other's red lines.

At the end of last week Greek Prime Minister Alexis Tsipras was referring to the creditors' suggestions as illogical and absurd. Meanwhile over the weekend EU Commission president Jean-Claude Juncker has accused Tsipras of distorting the discussions that took place last week. Juncker is generally perceived as one of Tsipras' few potential allies, or at least one of participants most likely to be flexible to keep Greece in the eurozone.

BAML's Vamvakidis adds that because positive developments need to start soon for the June 30 deadline to be reached, "we may see negative scenarios unfolding even before June 30."

Barclays analysts also lay out the potential for political crisis in a note:

In our view, this reflects mounting divergence within the Syriza party, especially about the government’s acceptance of more fiscal measures and pension cuts in order to reach a deal. We think compromise on these thorny issues by the Greek government will be costly politically. It could trigger a political crisis that would accelerate deposit outflows and result in the imposition of capital controls on Greek banks.

So the new June 30 deadline doesn't actually give the negotiators much more room to breathe, and the inevitable crunch — whether financial or political — is looming.

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Merkel-Schaeuble Differences Over Greece Approach Said to Widen

A split between German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble is widening over Greece as the funding standoff goes down to the wire, said people familiar with the matter.

Merkel is ready to make concessions to keep Greece in the euro because of geopolitical concerns, while Schaeuble is willing to let the country exit the euro unless its government takes measures to ensure the country’s long-term survival in the monetary union, said the people, who asked not be identified speaking about internal party discussions.

That divide is also reflected in Merkel’s parliamentary caucus, which is increasingly uneasy with letting the 41-member budget committee decide on disbursing any aid to Greece and is looking instead at a vote of the lower house of parliament on a deal that includes changes to previous agreements, they said. The Finance Ministry declined to comment on the internal deliberations and referred to a statement last week by spokesmen for Merkel and Schaeuble said the two are working closely on the crisis.

Greece is deadlocked with creditors over the conclusion of a multi-year bailout program expiring at the end of the month, with Prime Minister Alexis Tsipras calling the latest offer “a bad negotiating trick” in talks that place “clearly unrealistic” demands on the euro region’s most indebted member. While Merkel has repeatedly said she’ll keep working to allow Greece to stay in the euro area, Schaeuble has emphasized that the contagion risk from the country possibly exiting the bloc is “marginal.”

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ECB's Hanson says "things are moving in the right direction" on Greece

One wonders sometimes whether these guys are anywhere near the core action given the diversity of their commentsOur man from Estonia sees a glass half full anyway

Elsewhere ECB's Likanen says solution lays in the hands of the Greeks

Euro on the back foot again as bonds retreat

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German Lawmakers To Vote Against Greek Bailout Saying Athens "Not Serious At All"

“What they are delivering at the moment is not serious at all.”

That’s Michael Fuchs, a senior lawmaker for German Chancellor Angela Merkel’s Christian Democratic bloc and it seems to accurately reflect the sentiments of Greece’s creditors with regard to the latest set of “proposals” submitted by Athens.

Indeed, some have suggested that Greek PM Alexis Tsipras’ latest ‘effort’ represents more a step back than a step forward. As a reminder, Greece handed in two three-page documents on Tuesday, one of which focused on fiscal targets and the other amounted to a request to tap the ESM in order to repay the ECB, which would amount to a similar (if not quite as egregious) circular funding scheme as that which the Greeks employed in May when they drew down their IMF SDR reserves to just €30 million in order to make a €750 million payment to the Fund.

On Tuesday, reports indicated that a rift between Merkel and German FinMin Wolfgang Schaeuble was growing wider, with many German lawmakers inclined to side with Schaeuble should it come to a decision between supporting Merkel’s inclinations towards concessions or the finance ministry’s less accommodative stance that implicitly sanctions cutting the Greeks loose.

Now, it would appear tensions are rising in Berlin with a growing number of German lawmakers committed to voting against a third bailout for Athens. Bloomberg has more:

Under the latest Greek plan, Tsipras wants access to bailout funds left in the European Financial Stability Facility and for the country’s banks to be allowed to buy more of the state’s short-term debt, an international official said. Greece also requested funds from the European Stability Mechanism to repay about 6.7 billion euros ($7.6 billion) of bonds held by the ECB that come due in July and August.

The official described the revised Greek plan as a vague rehash of earlier proposals and said it is not credible.

The Greek negotiating tactics are stoking frustration in Germany, where any changes in Greece’s bailout terms require backing by lawmakers. With legislators in her party bloc increasingly fed up, Merkel didn’t mention Greece during a speech Tuesday at a business conference in Berlin.

Tsipras’s government “hasn’t made a good impression on me in the last few days,” Thomas Oppermann, parliamentary leader of the Social Democrats, Merkel’s junior coalition ally, told reporters.

But it’s not just the Germans. Yesterday’s proposals from Athens have, by the looks of things, been roundly rejected by EU officials as a non-starter. Via Bloomberg again:

Impasse in talks between Greece and its creditors continues, no progress was achieved in Brussels talks on Tuesday, according to an international official directly involved in the negotiations.

Disagreements persist on fiscal targets, measures needed to achieve them, the person said, asking not to be named, as he wasn’t authorized to speak publicly on the matter.

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There's a good chance that next week will bring an agreement with Greece - EU

Senior EU official reported on Reuters

  • There is a good chance next week will bring an agreement with Greece that is acceptable to Eurogroup creditors
  • Pension reforms, VAT, primary surplus will all be on the table
  • Doesn't think there will be a breakthrough today

There's a finance minister meeting June 18th which could put the finishing touches to any deal

 

Europe Gives Greece 24 Hours To Comply; Germany Draws Up Capital Control Plans

EU officials turned up the heat on Athens Thursday after the IMF withdrew its team and sent its lead negotiators back to Washington.

In what can only be described as a half-hearted effort, Greek PM Alexis Tsipras submitted two three-page proposals earlier this week that were dismissed by creditors as “not serious.” We suggested that perhaps that was intentional as Tsipras, having bought Greece some time by opting for the “Zambian” IMF payment bundle, is simply keeping up appearances while the real negotiating is going on behind the scenes with Syriza party hardliners who Tsipras desperately needs to support any proposal before it goes to parliament in order to avoid what could quickly deteriorate into a political and social crisis.

One has to believe that Brussels understands this, but it could very well be that between Tsipras’ scathing op-ed (published two Sundays ago) and the PM’s fiery speech to parliament last Friday, creditors are becoming concerned that Tsipras might actually be starting to believe that he can effectively blackmail the EMU by threatening to prove, once and for all, that the currency bloc is in fact dissoluble no matter what manner of protestations one might hear in polite company.

So, with the IMF having thrown in the towel, and with German lawmakers set to rally behind the incorrigible FinMin Wolfgang Schaeuble in what amounts to a mutiny on the SS Merkel, Europe appears to have finally had enough because by Thursday evening, reports indicated that EU officials have given Greece 24 hours to come back with a proposal that includes pension reform and VAT increases.

Via Bloomberg:

Greece was warned by a group of European Union officials in Brussels it had less than 24 hours to come up with a serious counter-proposal, according to a person familiar with the discussion.

Greek delegate told by EU officials that a list must includes reform on pension and VAT.

Greece told by the officials that they are taking seriously all scenarios.

EU official didn’t specifically say what would happen to Greece if there was no plan presented tomorrow.

And meanwhile, Reuters (citing Bild) says Germany is now engaged in “concrete” discussions over how to handle a Greek bankruptcy :

The German government is holding "concrete consultations" on what to do in the case of a bankruptcy of the Greek state, German newspaper Bild said, citing several people familiar with the matter.

This includes discussions about introducing capital controls in Greece if the crisis-stricken country goes bankrupt, Bild said in an advance copy of an article due to be published on Friday.

It said a debt haircut for Greece was also being discussed, adding that government officials were in close contact with the European Central Bank on that.

The German government did not, however, have a concrete plan of how it would react if Greece goes bankrupt and much would have to be decided on an ad-hoc basis, Bild cited the sources as saying.

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Greece ready to submit counter proposals - Livesquawk

Livesquawk reporting a Greek government officialFurther details coming from Reuters

  • Says we are closer to a deal than ever
  • Will be sending a party to Brussels for talks tomorrow
  • Europe should not head to a split over demand for restoration of collective bargaining rights

That's given the euro an extra hand up the pole. We spiked to 1.1297 from 1.1270

We've been here before so be prepared for possible counter comments from the EU/IMF side

 

Tsipras seeks debt relief as Greeks take offer to Brussels

Greek Prime Minister Alexis Tsipras said he was willing to accept unpalatable compromises to secure a deal with international creditors provided he gets debt relief in return, something that Germany refuses to countenance.

With Greece heading towards possible default and bankruptcy, he told his negotiating team before it took a counter-proposal to Brussels that without debt relief he would reject any settlement that isolates his country from the rest of Europe.

In little more than a fortnight, Athens must repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund with money it does not have.

Greek ministers arrived in Brussels on Saturday to resume negotiations on a cash-for-reforms deal with the EU and IMF creditors that ended in stalemate on Thursday.

The counter-proposal offering concessions on budget issues is designed to break the deadlock that is threatening Greece's future in the euro zone.

Tsipras, who was elected in January on promises to end austerity, made it clear he was willing to give ground but with strings attached that German Chancellor Angela Merkel is unlikely to accept.

"If we have a sustainable solution, regardless of how difficult the compromise is, we will bear the burden because the only criteria are exiting the crisis and the bailouts," a government official quoted Tsipras as telling the ministers on Friday night before they headed to Brussels.

Tsipras used the term "sustainable solution" to refer to a long-standing demand for large parts of Greece's mountainous debts to be written off or rescheduled - something he believes is vital if the Greek economy is to start getting back on its feet after a six-year depression.

Much of that debt is owed to Germany, the biggest contributor to Greece's 240 billion euro bailouts. Any acceptance by Merkel that the money might never be paid back would almost certainly create uproar among the country's politicians and taxpayers.

EU officials question Greek assertions that the debt is asphyxiating the economy. The government's immediate problems are with repaying loans from the IMF and European Central Bank while privately held debt is relatively modest following a major write-down in 2012.

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"without debt relief he would reject any settlement that isolates his country from the rest of Europe"

Greece is already isolated. That is what the whole sharade was made for : to arange all that is needed not to suffer loses when they make it official

 

'We Don't Want Any More Money': Varoufakis

Speaking for popular German newspaper Bild in an interview published on Monday morning, Greek Finance Minister also said debt restructuring was the only way forward in order to reach a sustainable solution.

"I rule out a 'Grexit' as a sensible solution," Yanis Varoufakis told the newspaper. "But no one can rule out everything. I can't even rule it out a comet hitting earth."

Talks between Athens and its international creditors have been a failure so far, with European leaders expressing their frustration with Greece heading towards a debt default and possible exit from the euro zone, while the International Monetary Fund (IMF) technical team left the negotiating table. Despite a weekend attempt to find some way forward, there was no further progress.

"There is a significant gap between the plans of the Greek authorities and requirements of the commission, ECB and IMF," the European Commission said in a statement.

Deal still possible

However, Varoufakis said that a quick agreement between Greece and creditors could be still possible. The only way Greece would be able to repay its debts is if there is a restructuring and such a deal could be possible if German Chancellor Angela Merkel took active part in the talks.

"We don't want any more money," Varoufakis said, adding that the austerity program imposed on Greece had failed. "There's no way around it: We have to start all over again. We have to make a clean sweep...An agreement could be reached in one night. But the chancellor would have to take part."

"The fact is, unless some significant concessions are made on either side a default is now more or less inevitable, and even if a plan were agreed that was agreeable to the creditors, it is unlikely that the Greek government would be able to get it through their parliament," Michael Hewson, chief market analyst at CMC Markets UK, wrote in a note to clients on Monday.

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