Merkel Coalition Readies for Greek Deal as EU Crises Multiply

by Birgit Jennen

Bloomberg
April 7, 2016

German lawmakers say they expect Greece and its creditors to reach an accord to unlock further bailout funds, avoid a debt cut and meet Chancellor Angela Merkel’s demand that the International Monetary Fund take part in the aid program.

In a turnaround from last year, when mainstream German politicians lined up to advocate booting Greece out of the euro, lawmakers and officials in Berlin now say they’re counting on a deal. While the slow pace of talks has raised speculation of another Greek budget crunch in July, Germany policy makers see the Greek dilemma as eminently solvable compared with strife over migration and the threat of the U.K. leaving the European Union.

“The EU has so many issues it can’t agree on these days, including the refugee crisis,” said Ingrid Arndt-Brauer, a Social Democrat who chairs the German lower house’s finance committee. “At least on Greece one can hope for an agreement. We’ve always managed to reach one in the past.”

Underpinning that view is Merkel’s open door to limited debt relief and her determination to avoid destabilizing Greece as it struggles at the frontline of Europe’s refugee crisis. After Merkel and IMF Managing Director Christine Lagarde discussed Greece in Berlin on Tuesday, the chancellor said negotiations are “on a very sensible path” though more work was needed for an agreement.

“As in the past, there will ultimately be a deal with the IMF on debt relief, without calling it debt relief,” Carsten Linnemann, a member of Merkel’s Christian Democratic Union who voted against the latest Greek aid package in July, said in an interview.

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Germany's Merkel says Greece can't have debt haircut in euro zone

Reuters
April 5, 2016

Chancellor Angela Merkel said on Tuesday that a debt haircut for Greece was not possible so long it remains in the euro zone, adding that Germany wanted a quick conclusion of a bailout review.

Merkel spoke after meeting IMF chief Christine Lagarde. The IMF has fought shy of participating in the bailout without a firm promise of debt relief for Greece from the EU.

Germany, while keen for the IMF to take part, has said relief cannot be discussed until Athens has demonstrated compliance with the terms of the bailout.

"It is not a demand of the federal government to have no debt haircut but rather in our opinion this is legally not possible in the euro zone," Merkel told reporters in Berlin after meeting International Monetary Fund head Christine Lagarde and other global economic leaders.

"The German position is that the IMF takes part in an agreement ... We want a quick conclusion of these talks," Merkel added.

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Greece needs to keep the IMF at the table. Tsipras is putting short-term political gain ahead of national interest

Financial Times
Editorial
April 4, 2016

Since Alexis Tsipras persuaded Greek voters to endorse a third bailout programme, after flirting last summer with sovereign default, eurozone creditors have been keen to view him as a responsible partner. The row over a leaked conversation between International Monetary Fund officials suggests they are wrong.

The Greek prime minister has seized on the transcript of a teleconference about bailout negotiations to claim the IMF is trying to push the country towards bankruptcy, so as to impose ever-tougher austerity policies. Christine Lagarde, in a furious response, has all but openly accused him of wiretapping officials and leaking the recording.

If it is true that the Greek government has engineered the crisis in an attempt to eject the IMF from bailout talks, then its tactics are irresponsible. Whatever the source of the leak, it is clear that Mr Tsipras wants the IMF to leave. Once again, he is displaying an instinct for short-term political gain and a disregard for his country’s long-term interests.

The ever-unpopular IMF is an easy target for a prime minister facing criticism for his handling of the economy and the refugee crisis, and under pressure from the resurgent opposition headed by Kyriakos Mitsotakis. It is also true that the fund would be a tougher judge of Greece’s fiscal and economic performance.

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IMF Discussed Pressuring Germany on Greek Debt, WikiLeaks Says

by Nikos Chrysoloras & Eleni Chrepa

Bloomberg
April 2, 2016

International Monetary Fund officials discussed the possibility of putting pressure on German Chancellor Angela Merkel to give Greece debt relief, or the IMF would withdraw from the country’s bailout program, according to a transcript of a purported conversation published by WikiLeaks.

Three officials said the refugee crisis, the U.K. “Brexit” referendum and Greece’s July deadline to repay about 2.3 billion euros ($2.6 billion) in principal on Greek bonds held by the European Central Bank were key events that could bring the issue to a head, according to the transcript on the WikiLeaks website. When asked about the account, an IMF spokesperson in an e-mail said the fund never discusses leaks or supposed reports of internal discussions.

The purported conversation underscores tensions that still divide Greece’s creditors after six years and three financial bailouts. IMF has been at loggerheads with auditors from the European Commission over the fiscal measures that the continent’s most indebted state must implement in order to meet its agreed budget targets, while Germany and other euro area countries have been insisting that the Fund will eventually have to get on board for the bailout to proceed.

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EU-Turkey deal fails to stem refugee flight to Greece

by Karolina Tagaris

Reuters
March 21, 2016

They waved, cheered and smiled, elated to have made it to Europe at dawn on Sunday in a packed blue rubber motor boat.

The 50 or so refugees and migrants were among the first to arrive on the Greek island of Lesbos on day one of an EU deal with Turkey designed to close the route by which a million people crossed the Aegean Sea to Greece in 2015.

Exhausted but relieved, the new arrivals wrapped their wet feet in thermal blankets as volunteers handed out dry clothes and supplies.

Reuters witnesses saw three boats arrive within an hour in darkness in the early hours of Sunday. Two men were pulled out unconscious from one of the boats amid the screams of fellow passengers and were later pronounced dead.

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On the front line: Greece’s biggest banks may appear to be out of danger, but they are not

Economist
March 12, 2016

On the face of things, Greece’s four big banks are in their best shape in years. In November they received their third bail-out in as many years. The extra €14.4 billion ($15.9 billion) they got then (some of it from private investors) raised their capital ratios to 18%, well above the European average of 13%. Recent legal changes make it easier for them to repossess collateral and to sell loans to third parties. Better yet, recent data suggest the economy shrank by only 0.2% last year, much less than initially feared. The Bank of Greece predicts that growth could return as early as this summer. After eight years of crisis and recession, normality at last seems within reach.

But beneath the cushion of fresh capital, cracks remain. Greek banks are still losing money. Piraeus Bank, the country’s second-largest lender, this week reported a net loss of €1.9 billion in 2015. Deposits have barely begun to grow again after last year’s run; the capital controls it prompted remain in place. Fully 40% of loans and 55% of mortgages are not being paid down, compared with a European average of 5%. Big losses on non-performing loans (NPLs) and debt securities could erode the banks’ capital once again. Greece is rowing with the other members of the euro zone about the conditions of its bail-out, raising the spectre of another crisis. A fourth recapitalisation is not out of the question, says Josu Fabo of Fitch, a rating agency. The markets remain nervous: bank shares are down by 36% since the start of the year.

The banks are largely innocent bystanders in the endless back and forth between the Greek government and its creditors, but they are guilty of procrastination when it comes to their NPLs. Instead of restructuring the loans worth saving, calling the bluff of defaulters that could probably pay, and reclaiming and selling the collateral of the hopeless cases, they are counting on a return to growth to rescue delinquent borrowers. That, in turn, is impeding the flow of capital to ventures that might help revive the economy. Yannis Stournaras, the head of the central bank, recently demanded “bold and innovative initiatives” to clean up bad loans. “This cannot be ensured by the current ‘business as usual’ approach,” he added.

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Greek Bailout Retraces a Contentious and Dangerous Route

by Marcus Walker

Wall Street Journal
March 8, 2016

Greece’s bailout inspectors resume talks in Athens on Wednesday to try to unblock the Greek rescue program. The struggle over Greek budget targets, austerity, loans and debt relief is flaring up again at an awkward time. Europe, by effectively shutting down the Balkan migration route, is turning Greece into a big holding pen for refugees and other migrants. Managing that mess will be difficult enough. Nobody wants another crisis over Greek debt and euro membership like in 2015.

Still, the 2016 Greek debt deadlock is potentially explosive even on its own. Here’s why.

Q: Only last summer Greece and the eurozone agreed on a new bailout deal. Now what’s the problem?

A: In July, Europe averted a Greek exit from the euro but didn’t fix the basic problem. Greek bailout plans since 2010 have kept breaking down because they have asked Greece to reach large budget surpluses that have proved beyond the country’s brittle political system. The alternative would have been to target lower surpluses and restructure the nation’s debt. But European creditors, led by Germany, have consistently rejected that alternative.

Now the International Monetary Fund has lost patience. Unlike the euro zone, it didn’t agree on a new loan program with Greece this past summer. The IMF’s insistence that there are only two ways to fix Greece – either via another heavy austerity program centered on pension cuts or with generous debt relief from Europe – is exposing the contradictions in July’s deal.

German Chancellor Angela Merkel needs the IMF to resume lending to Greece. She has always said the IMF’s participation is vital for credibility. And German officials say they won’t ask their parliament, the Bundestag, to release any more euro-zone loans until Greece agrees to a new IMF program.

But the IMF is at loggerheads with both Greece and European institutions, led by European Commission, about what needs to be done.

A solution is needed before July, when Greece would need fresh bailout funds to repay debts.

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Greece’s Piraeus and Attica banks probed over recapitalisation

by Kerin Hope

Financial Times
March 8, 2016

Two of Greece’s biggest lenders are being probed by the eurozone’s banking watchdog in connection with last year’s €14.4bn recapitalisation of the sector, which was as a condition of Greece’s latest international bailout.

Piraeus Bank, the country’s largest lender, and Attica Bank, its fifth-largest, are under scrutiny by the European Central Bank’s single supervisory mechanism in its first audit of Greek financial institutions since it was set up in 2013.

The probe was launched after shareholders in both banks privately voiced concerns over possible irregularities in the latest round of capital raisings, say bankers involved in the procedures.

Two teams of investigators from the SSM are due to arrive in Athens this month.

The SSM supervises Greece’s four systemic banks while the Bank of Greece, the central bank, supervises smaller lenders including Attica.

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Germany’s Schäuble Sees No Need For Immediate Decision on Greece Payments

Wall Street Journal
March 8, 2016

There is no reason to take decisions now on how to ease Greece’s debt burden in the near future, Germany’s finance minister said Tuesday in another sign of disagreements between Athens’ creditors.

“I don’t have a proper argument for the German lawmaker and the German public…on why this should be the focus of debate now,” Wolfgang Schäuble said following discussions with other European finance ministers.

Under a third bailout deal for Greece reached with the International Monetary Fund last summer, eurozone governments pledged to take steps to ease Greece’s debt after the first review of the new rescue program. Mr. Schäuble said he expects that review to be conclude in April.

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Brussels seeks further reform to seal Greek bailout

by Peter Spiegel

Financial Times
March 7, 2016

Eurozone finance ministers have moved to break a deadlock between Greece’s warring creditors by sending bailout negotiators back to Athens to agree a new set of economic reforms.

Despite continued disagreement over how long the list of reforms must be, Jeroen Dijsselbloem, the Dutch finance minister who chaired the eurogroup meeting of his 16 counterparts, insisted there was “enough common ground” between the EU and the IMF to restart the negotiations. He said mission chiefs from the bailout monitors could arrive as early as Tuesday.

“More work will have to be done in Athens,” Mr Dijsselbloem said after the Monday evening eurogroup meeting in Brussels. “It’s not going to be easy, we’re very much aware of that.”

Officials acknowledged that the IMF and the EU had not reached an agreement on how thorough the reforms must be, essentially putting off a final fight over the future of Greece’s third, €86bn rescue for at least another month.

The IMF has hinted it is willing to walk away from the bailout if it deems the reforms inadequate, a move that would plunge Greece back into economic uncertainty. Without the IMF, a German-led group of creditor countries have said they would be unable to secure parliamentary approval for their participation in the EU’s rescue, potentially scuppering the deal.

“An interim solution without the IMF would be very difficult for a number of countries, including my own,” Alex Stubb, the Finnish finance minister, said.

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The Cost of Isolating Greece

by Yannis Palaiologos

Wall Street Journal
March 1, 2016

Austria and nine Balkan countries met in Vienna last week to consider ways migrants from war-torn Middle Eastern countries could be prevented from traveling north into Europe through Greece. It’s just the latest in a series of unilateral moves across Europe, which add up to the abandonment of the search for a pan-European solution to the current migration problem.

Gone are any attempts at an equitable distribution of burdens. In its place are proposals to isolate Greece, potentially trapping hundreds of thousands of migrants in an already economically battered country.

Greece has long borne the brunt of illegal immigration into Europe. In 2009, on the eve of the sovereign-debt crisis, 75% of all illegal border crossings into the European Union came through Greece. By 2010, that portion rose to 90%. Greek border-control and asylum-management policy were in a shambles.

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Double crisis deepens despair in Greece’s ‘warehouse of souls’

by Tracy McVeigh & Helena Smith

Observer
February 27, 2016

In Victoria Square, Athens, home to an ever-growing number of migrants, a dubious night-time economy has emerged. On Saturday, as a large, middle-aged man walked his small dog, an Afghan boy pointed him out to his new friend, Abdul Waris. “He is one of them who comes here at night,” said the boy. Abdul’s eyes widened. “It’s OK. They don’t want underage – they take the young men who will go willingly to their homes and give them a shower and €10 or €15 for sex. Some go, the ones who have no money left.”

That developing trade is possible because, in a piazza now synonymous with the migrant crisis overwhelming Greece, and where two Pakistani men hanged themselves from a tree on Thursday, many are running out of money.

There are more than 25,000 refugees and migrants stuck in Greece, police sources have told the Observer. The borders leading out have closed down one by one, leaving the country in danger of becoming what the Greek prime minister, Alexis Tsipras, described last week as a “warehouse of souls”.

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Schaeuble Hints Germany May Be Ready to Give Greece Some Leeway

Bloomberg
February 27, 2016

German Finance Minister Wolfgang Schaeuble hinted his country is willing to allow Greece some leeway as it struggles with the twins tasks of reforming the economy and caring for an influx of refugees.

“The financial situation is difficult,” Schaeuble told reporters at a Group of 20 briefing in Shanghai. “Greece is in the situation that it is receiving a lot of solidarity from Germany but not from all the others.”

Tensions over the handling of the region’s refugee crisis escalated on Friday as Greece denied an Austrian request for talks and the European Union’s top immigration official warned the deepening discord risks disaster. The divisions are widening ahead of an extraordinary summit of the EU’s 28 leaders on March 7 called to take stock of efforts to secure the bloc’s external frontiers and mitigate the influx of migrants.

“We are strongly fighting to combine the European tasks,” Schaeuble said of the refugee crisis and economic reforms in Greece. “Both come together.”

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Renowned U.S. Economist Says High Taxes Squash Greece’s Prospects for Recovery

by C.J. Polychroniou

Greek Reporter
February 22, 2016

A recently released study by the Economics Department at the National Kapodistrian University of Athens revealed that Greece has the third highest taxation rate among 21 European countries. Only Sweden and Denmark have a higher tax rate, countries with highly advanced welfare states and without the fiscal problems that plague Greece.

For a country asked to embark on rapid systemic reforms, entailing deep and painful structural adjustment policies, high taxes are extremely counterproductive and squash the prospects of recovery, says renowned American economist John Howland Cochrane.

In a lengthy talk, John H. Cochrane, who specializes in financial economics and macroeconomics and is the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago and a Senior Fellow at the Hoover Institution at Stanford University, said that “especially raising taxes on people who wanted to invest in Greece, expand businesses, and hire people was a very poor decision.”

Professor Cochrane added that “Greece may be expected to pay back its debts, but this should be done by helping its economy grow, not by imposing ever higher taxes on business and citizens.”

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Greek Anti-Austerity Hopes Boosted by Budget Surplus

by Nektaria Stamouli

Wall Street Journal
February 19, 2016

Greece had a primary budget surplus of 0.2% of gross domestic product in 2015, according to senior government officials, who hope the better-than-expected outcome will help them to convince creditors that Greece doesn’t need extra austerity measures this year.

The officials’ estimate, if verified by Greek and European Union statistics agencies, would mean that Greece’s budget had a surplus before interest payments of around €350 million ($389.1 million).

Greece’s new bailout program, agreed last summer with the eurozone and International Monetary Fund, foresaw a primary deficit of 0.25% of GDP for 2015.

A positive budget balance at the end of 2015 would help the Greek government’s argument that it doesn’t need large extra spending cuts or tax hikes, beyond those already agreed, to hit this year’s fiscal target.

Greece hopes to pass the first review of its performance under the bailout plan by March, to unlock rescue loans and shore up business and consumer confidence to help the economy stabilize this year.

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Closing the Balkan Route: Will Greece Become a Refugee Bottleneck?

Spiegel
February 9, 2016

At five o'clock in the morning last Tuesday: Macedonia has once again closed its border, and just a few hours later, chaos reigns. Eighty buses with 4,000 refugees have been stopped by the Greek police 20 kilometers from the frontier and they are now waiting in a gas-station parking lot. Bus drivers argue, refugees jostle on the overfilled lot and overwhelmed police officers yell orders. "Macedonia, Macedonia," the people waiting scream, "open the border!"

But today, the border remains closed to most people. And if it were up to Brussels and the Germans, it would remain that way -- that is, to anyone not from Syria, Iraq or Afghanistan. Since mid-November, Macedonia has tightened its border controls and whoever isn't from one these three countries is turned away. Now, many people's dreams of Europe come to an end here, in Idomene.

For it has recently become clear that Turkey is both unable and unwilling to stop the flow of refugees. As a result, the EU is placing its bets on Macedonia, with a plan that has the support of European Commission President Jean-Claude Juncker.

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Cheap Cigarettes Are Burning Greece's Finances

by Nikos Chrysoloras

Bloomberg
February 8, 2016

On an unremarkable morning on Stournari street in downtown Athens, just a few blocks away from the epicenter of every riot the city has seen during its recent crisis years, two men of Asian origin politely and openly hawk cigarettes to passersby.

The illegal packs of R.G.D.-branded smokes cost 1.50 euros ($1.70) each, less than half the price of 20 Marlboros or Prince at one of Greece’s ubiquitous street kiosks.

As Prime Minister Alexis Tsipras walks another tightrope between creditor demands for additional belt tightening and a social backlash, the scene exposes an unhealthy truth: Greeks could smoke, drink and gamble their way out of their next financial hole, if only they were taxed on all of it.

“Illicit cigarette and bulk tobacco trade strips the Greek state from significant revenue each year that could be used for paying pensions, salaries, and social benefits,” said Iakovos Kargarotos, vice-president of Philip Morris International’s affiliate in Greece, Papastratos AVES. “It creates a big public revenue hole that taxpayers have to fill.”

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Greece’s Prime Minister on the Ropes

by Yannis Palaiologos

Wall Street Journal
February 8, 20156

January was a bad month for Greece’s Prime Minister Alexis Tsipras. The election of Kyriakos Mitsotakis on Jan. 10 to the leadership of the official opposition and the rise of mass protests against the government’s plans for pension reform have decisively altered Greek politics in ways that undermine Mr. Tsipras’s plans for a more stable second term.

To start, Greece’s economic pain is back in the news. Technocrats representing the country’s creditors arrived in Athens last week for the first review of Greece’s progress in fulfilling the terms of its August bailout. There’s already been an uproar, especially among farmers and the self-employed, in reaction to Mr. Tsipras’s proposal to increase contributions, limit early retirement and cut pay-outs on pensions. But creditors, especially the International Monetary Fund, are likely to continue insisting that current retirees swallow further cuts in order to achieve a reduction in pension spending equal to 1% of gross domestic product this year.

Athens and its creditors also will have to agree on the fiscal measures for the entire 2016-18 period, by the end of which Greece is required to have achieved a primary surplus of 3.5% of GDP. With this government, that’s likely to mean more tax hikes. The finance ministry has already proposed an increase of the top tax rate to 50% for individuals making more than €60,000, or about $67,000.

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State Transformation and the European Integration Project: Lessons from the financial crisis and the Greek paradigm

by Evangelos Venizelos

Centre for European Policy Studies
CEPS Special Report #130
February 4, 2016

The financial crisis that erupted in the eurozone not only affected the EU’s financial governance mechanisms, but also the very nature of state sovereignty and balances in the relations of member states; thus, the actual inequalities between the member states hidden behind their institutional equality have deteriorated. This transformation is recorded in the case law of the Court of Justice of the European Union and the member states’ constitutional courts, particularly in those at the heart of the crisis, with Greece as the most prominent example.

It is the issue of public debt (sovereign debt) of the EU member states that particularly reflects the influence of the crisis on state sovereignty as well as the intensely transnational (intergovernmental) character of European integration, which under these circumstances takes the form of a continuous, tough negotiation. The historical connection between public debt (sovereign debt) and state sovereignty has re-emerged because of the financial crisis. This development has affected not only the European institutions, but also, at the member state level, the actual institutional content of the rule of law (especially judicial review) and the welfare state in its essence, as the great social and political acquis of 20th century Europe. From this perspective, the way that the Greek courts have dealt with the gradual waves of fiscal austerity measures and structural reforms from 2010 to 2015 is characteristic. The effect of the financial crisis on the sovereignty of the member states and on the pace of European integration also has an impact on European foreign and security policy, and the correlations between the political forces at both the national and European level, thus producing even more intense pressures on European social democracy. In light of the experience of the financial crisis, the final question is whether the nation state (given the large real inequalities among the EU member states) currently functions as a brake or as an engine for future European integration.

Evangelos Venizelos is former Deputy Prime Minister of Greece (2011–12, 2013–15), Minister of Foreign Affairs (2013–15), Minister of Finance (2011–12), Minister of Defence (2009–11) and former Leader of PASOK (2012–15). He currently serves as a member of the Greek parliament and is Professor of Constitutional Law at the Aristotle University of Thessaloniki.

Read the Report (PDF)

The Grexit that Could Actually Happen

by Jacob Funk Kirkegaard

Peterson Institute for International Economics
February 1, 2016

For years the euro area has labored to successfully prevent a financial exit by Greece from the common currency, a fear commonly known as “Grexit.” Following the September 2015 elections, Greece now has a parliament that is overwhelmingly pro-euro and in compliance with the program imposed by the European Commission, the European Central Bank, and the International Monetary Fund (IMF), known as the Troika. Barring major external economic and political shocks, the country can return to growth in 2016 and get further debt relief from the euro area. The migration crisis in Europe threatens this hopeful forecast and could even force a de facto “physical Grexit” from the rest of Europe.

Last week the European Commission started a bureaucratic doomsday clock threatening Greece with expulsion from the Schengen Area of open borders if it does not manage its border with Turkey more effectively. The legal basis for such an expulsion would be the conclusion of the so-called Schengen Evaluation Report of Greece, based on unannounced inspections to verify compliance with its rules for identification and registration of migrants at the Turkish-Greek border in late 2015.

The draft report has not been made public, but EU Migration and Home Affairs Commissioner Dimitris Avramopoulos has described “serious deficiencies in the management of the external border in Greece.” Unless Greece implements in the next three months whatever remedial measures the Commission and Schengen Evaluation Committee propose,1 a qualified majority of Schengen members (e.g. , able to outvote Greece) may reintroduce physical internal border control to protect the common interest of the Schengen Area and hence leave Greece out for up to two years.

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