The Greek Deal That No One Wants

by Yannis Palaiologos

Wall Street Journal
May 10, 2016

Old Greek bailouts never die, it seems. They just fade into new, equally bad arrangements that amplify the mistakes of the recent past.

Protests erupted again in Athens this weekend as Prime Minister Alexis Tsipras and the coalition led by his far-left Syriza party pushed through another round of tax increases and pension cuts. Mr. Tsipras is trying to show Greece’s creditors he’s abiding by the deal he struck with eurozone governments in July, the third bailout in five years. That deal requires Athens to achieve a fiscal surplus of 3.5% of gross domestic product, excluding debt service, by 2018, and for decades to come.

The bill approved by Parliament Sunday accounts for most of the €5.4 billion ($6.15 billion) in extra revenue and reduced spending the government and its European creditors think will get it to that target. But the creditors aren’t united. The International Monetary Fund, which participated in the first two bailouts but has yet to sign on to the current plan, thinks both sides are working from unrealistic projections of growth and revenue. It believes Athens would need to find another €3.6 billion in cuts—2% of GDP—to reach its 2018 target. The Fund wants the Greek government to pass a “contingency” plan of cuts that will kick in automatically if its own, less-rosy fiscal forecasts turn out to be correct.

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Where Do We Stand on Greek Debt?

by Viktoria Dendrinou & Gabriele Steinhauser

Wall Street Journal
May 10, 2016

Why was Monday’s Eurogroup important?

Eurozone finance-ministry officials, for the first time, discussed in some detail what they might be willing to do to ease Greece’s debt burden.

The basis for this debate was a so-called nonpaper — the kind of document that is meant to be confidential but somehow always finds its way to an enterprising journalist — dubbed “Greece: Proposal for Debt Relief Measures” (full document behind the link). The nonpaper was prepared by Greece’s European creditors, namely the European Commission, the European Central Bank and the European Stability Mechanism, which raises the money for Athens’ third bailout.

As we explained here, the suggested measures range from capping interest rates and principal payments on Greece’s loans from the European Financial Stability Facility, which funded the country’s second bailout, to returning central-bank profits from Greek government bonds to Athens. Maybe more controversially, it also suggests that any money left over once the €86 billion eurozone rescue program expires in 2018 could be used to pay back more-expensive loans from the International Monetary Fund.

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Greek Prime Minister Alexis Tsipras Expresses Optimism Over Bailout Talks

by Marcus Walker & Nektaria Stamouli

Wall Street Journal
May 10, 2016

Greece’s leader Alexis Tsipras on Tuesday claimed a major breakthrough in its debt-and-austerity talks, even as officials from Greece’s creditors warned that big obstacles remain to a deal that keeps the country afloat this summer.

“After six years of continued cuts, bad news and harsh austerity, we finally had some good news,” Mr. Tsipras said in a televised speech to his cabinet. He said Greece was on course to get fresh bailout loans without having to legislate additional austerity measures.

Eurozone finance ministers also heralded progress after talks in Brussels on Monday. But major sticking points remain. European officials hope they can be resolved by the next ministerial meeting on May 24. Some warn it could take longer.

The International Monetary Fund and Greece are still at odds over what Athens must do to ensure it hits its tough fiscal targets. The IMF and Germany remain far apart on how much debt relief Greece needs, with Berlin determined to avoid signing up to any significant restructuring of loans until 2018.

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Eurozone Asked to Consider More Concessions on Greece’s Debt

by Viktoria Dendrinou & Gabriele Steinhauser

Wall Street Journal
May 9, 2016

A confidential document debated by eurozone finance ministers detailed for the first time what Greece’s creditors could do to ease the country’s debt load and how that burden would develop over the coming decades without new relief measures.

The document, which was reviewed by The Wall Street Journal, served as the basis of Monday’s emergency meeting, in which the ministers discussed for the first time the possibility of further debt relief for Greece. The finance chiefs said they aimed to reach a deal on the matter by their next meeting May 24 to resolve an impasse among the country’s creditors and release much-needed bailout funds to Athens.

But the wide variations in the document’s debt projections signaled more difficult discussions ahead among Greece’s lenders over how to allow the country to stand on its own feet again after three international bailouts. Those creditors include the 18 other eurozone countries—led by Germany, which opposes all but minimal changes to Greece’s debt burden—and the International Monetary Fund, which wants to see as much relief as possible.

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Greece’s biggest bank chief faults Tsipras for sluggish reforms

by Kerin Hope

Financial Times
May 9, 2016

The chairman of Greece’s biggest bank has taken aim at the leftwing government of Alexis Tsipras, the prime minister, saying it must own and fully implement reforms — not just legislate them — if the country is to return to growth.

“The real issue is that Greece implements the measures, that the government strengthens the role of the private sector and that the role of the state in the economy is restricted,” Michalis Sallas said in an interview with the Financial Times.

A normally reclusive figure, the Piraeus Bank chairman visibly exudes the frustration felt by senior Athens bankers over a six-month delay in completing a progress review of Greece’s third international bailout, which many regard as critical to attracting investors back to the cash-strapped country.

Mr Sallas and other bankers fault the Tsipras government more than the creditors for the delays, and worry that continued foot-dragging raises the risk of Athens defaulting on a sovereign debt payment and plunging the country into another crisis.

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Greece Seeks to Unlock Aid as Impasse Risks Political Unrest

by Jonathan Stearns

Bloomberg
May 9, 2016

Greece returns to center stage on Monday when aid deliberations by its international creditors will signal whether the country faces a renewed period of political drift or wins some breathing space after six years of turbulence.

The euro area and the International Monetary Fund will assess whether Greek Prime Minister Alexis Tsipras has made enough budget-tightening commitments to gain another disbursement of emergency loans. At issue is an IMF demand for fiscal “contingency measures” worth about 3.5 billion euros ($4 billion) in case Greece strays off budgetary course.

Such a package, equal to 2 percent of Greece’s gross domestic product, is politically thorny for a premier who promised voters he’d oppose any extra austerity and who governs with a three-seat parliamentary majority. Should the IMF give the Greek government insufficient wiggle room at the meeting with euro-area finance ministers in Brussels, Tsipras could end up calling snap elections or a referendum -- both of which featured last year when Greece came close to a euro exit.

“The nature of the contingency package could determine the government’s fate, as it would be very difficult to secure the required parliamentary majority for detailed measures,” Wolfango Piccoli, an analyst at Teneo Intelligence in London, said in a May 6 report. “The risk of snap polls could increase significantly if the lenders decide to play hardball.”

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Greek parliament begins debate on austerity measures amid wave of strikes

by Kerin Hope

Financial Times
May 7, 2016

The Greek parliament has opened a two-day debate on tough new pension and tax measures demanded by bailout creditors amid a wave of unannounced strikes that shut down local media outlets, public transport and ferries to the Aegean islands.

A vote is due on Sunday night in the 300-member house, where the leftwing Syriza party of Alexis Tsipras, the prime minister, and his coalition partner, Independent Greeks, together control a fragile two-seat majority.

The premier unexpectedly brought forward the vote hoping to convince eurozone finance ministers meeting on Monday that Greece is now committed to completing a first review of its €86bn bailout after six months of foot-dragging over details of the reforms.

Greek officials were upbeat on Saturday about a call by Christine Lagarde, the International Monetary Fund chief, for negotiations to begin immediately on granting debt relief for Greece. At the same time, the Fund backtracked on earlier demands for another €3bn in “contingency” budget cuts, saying they were “fruitless”.

“It’s a positive development for Greece after weeks of fighting hard against the contingency measures,” said a senior Greek official. “Debt relief is expected to be part of the discussion on Monday.”

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Leaked: The annotated Lagarde letter on Greece

by Peter Spiegel

Financial Times
May 6, 2016

Monday was supposed to be the day when eurozone finance ministers flew to Brussels for an emergency eurogroup meeting (just their first of 2016!) to agree a way forward on Greece’s star-crossed €86n third bailout. But despite weeks of intensive talks, negotiators are no closer to a deal then they were when they were sent back to Athens two months ago.

Last night, Christine Lagarde, the International Monetary Fund chief, sent a letter to all 19 finance ministers ahead of the Monday meeting with her demands: drop all the talk about new austerity measures and quickly agree a plan for debt relief so that a deal can be met before a possible Greek default in July. We got a hold of the letter, and have posted a news story on its contents here. But as is our practice at the Brussels Blog, we thought we’d offer up an annotated version of the full text, sent to national capitals last night:

Dear minister:

Program discussions between Greece and the institutions have made progress in recent weeks, but significant gaps remain to be bridged before an agreement can be reached that would include the IMF under one of our program facilities. I think it is time for me to clarify our position, and to explain the reasons why we believe that specific measures, debt restructuring, and financing must now be discussed simultaneously.

This is the main news in the letter: until now, negotiators have been trying to sequence three different sets of agreements in order. First, they wanted to agree a core set of reforms that were originally part of the new bailout programme. Second, and this was a relatively new idea, they were to agree a set of “contingency measures” that would kick in if the Greek programme veered off course. Third would come debt relief. Lagarde is essentially saying here that trying to do this sequentially makes no sense. She also is clearly signalling the “contingency measures” talks – which have been holding up progress for a month – are becoming fruitless.

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A Push for Greek Cuts Even Creditors Think Go Too Far

by Marcus Walker

Wall Street Journal
May 5, 2016

Six years to the week after Greece’s ill-starred bailout began, the government and its creditors are stuck at an impasse that threatens to push the country to the brink of default again.

The deadlock concerns a package of fiscal retrenchment measures that could come to 5% of Greece’s gross domestic product.

The paradox is that it is hard to find a policy maker involved—or an economist—who argues that further belt-tightening on that scale is what Greece’s economy needs at this point. But differences between its main creditors, the eurozone and the International Monetary Fund, are preventing a reassessment of how to put Greece back on its feet.

Back in May 2010, a heavy austerity program in Greece was inevitable. The country had lost control of its finances. No lender was willing to finance the status quo. Greece’s primary budget deficit, which excludes interest, was over 10% of its gross domestic product.

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Study: Bailouts for Banks, Not Greeks

by Jan Hildebrand and Thomas Sigmund

Handelsblatt
May 4, 2016

After six years of ongoing bailouts amounting to more than €220 billion, or $253 billion in loans, Greece just cannot get out of crisis mode.

It is tempting to blame those who refused to reform the country’s pensions and labor markets for the latest calamity. But a study by the European School of Management and Technology, a copy of which Handelsblatt has obtained exclusively, gives another perspective. The aid programs were badly designed by Greece’s lenders, the European Central Bank, the Europe Union and the International Monetary Fund. Their priority, the report says, was to save not the Greek people, but its banks and private creditors.

This accusation has been around for a long time. But now, for the first time, the Berlin-based ESMT has compiled a detailed calculation over 24 pages. Their economists looked at every individual loan instalment and examined where the money from the first two aid packages, amounting to €215.9 billion, actually went. Researchers found that only €9.7 billion, or less than 5 percent of the total, ended up in the Greek state budget, where it could benefit citizens directly. The rest was used to service old debts and interest payments.

The report comes as the European Union and the Greek government prepare to hold negotiations about further debt relief. E.U. Economics Commissioner Pierre Moscovici said he hoped all sides could reach an agreement at a special meeting of the Eurogroup of euro-zone finance ministers next Monday. Extensions of credit repayment periods, deferments and freezing interest rates are all being discussed. This “debt relief light” would not affect private investors – just the loans from Europeans.

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The threat of Grexit never really went away

Economist
May 4, 2016

The tagline of the film “My Big Fat Greek Wedding 2”, which was released in March, is “People change. Greeks don’t.” Whether any euro-zone finance ministers have seen the film, let alone detected any resemblance to their ongoing talks with the Greek government over its third bail-out, is unknown. But the renewed bickering about whether Greece is keeping to its end of the bargain, complete with threats of a snap election if its creditors don’t give more ground, has the air of a duff sequel.

Greece badly needs the next dollop of the €86 billion ($99 billion) bail-out creditors promised it last summer, in exchange for promises of austerity and reform. But it will not get the money until the creditors complete a review of its progress, which has been dragging on since November. The government has scraped together enough cash (by raiding independent public agencies) to pay salaries and pensions in May, perhaps even in June. But by July 20th, when a bond worth more than €2 billion matures, the country once again faces default and perhaps a forced exit from the euro zone. The threat of Grexit is not exactly back; it never really went away.

With a referendum on Britain’s EU membership in June and a possible flare-up of the refugee crisis as summer approaches, the last thing Europe needs is another Greek drama. The European Commission is thus in a mood for compromise. It emphasises that negotiations are “99%’’ complete. But the other creditor, the IMF, is less forgiving. With tax arrears in Greece rising and reforms constantly delayed, the fund has little faith that the programme’s target of a 3.5% primary budget surplus by 2018 can be achieved. It wants Greece to make a contingency plan to raise more money or cut spending further before it approves the next instalment of the bail-out.

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Greece's Next Bailout Battle

by Stathis N. Kalyvas

Foreign Affairs
May 3, 2016

The Greek crisis erupted in 2009 and peaked for the first time in the spring of 2010. Unable to refinance its enormous debt, Greece was bailed out by the European Commission, the European Central Bank, and the IMF. The bailout prevented a major economic catastrophe but signaled the start of a protracted economic and political drama that spread to the rest of the eurozone. In Greece, the crisis peaked twice more: in the summer of 2012, when two successive elections left Greece’s political system in shambles, and in the summer of 2015, when Greece’s newly elected left-wing government unsuccessfully threatened its European creditors and the IMF with a massive default in a failed attempt to win some debt relief and a break from austerity policies.

At each inflection point, commentators wrung their hands over the potential contagion from a catastrophic Greek default and subsequent exit from the eurozone. The near collapse of June-July 2015 was perhaps the most dramatic, peaking with a bank shut-down and bizarre referendum in which the embattled Greek prime minister and anti-austerity champion, Alexis Tsipras, urged Greeks to reject a bailout package that he had just negotiated with Greece’s Troika of creditors.

In the end, the doomsayers were wrong all three times. Grexit did not happen and the euro survived. As for the July 2015 showdown, its resolution was decidedly anti-climactic. Greeks voted “no” in the referendum, but faced with the prospect of complete economic collapse, Tsipras executed an undignified U-turn, settling for an 85 billion euro ($96 billion) bailout, the country’s third since 2010. A new round of elections was called in September 2015. Tsipras won again, but with the exact opposite mandate of the one that he had before: instead of abolishing austerity, he now promised to implement it. The weeks wore on and, as before, Greece retreated from the global headlines.

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Greece, Germany, IMF: Someone Has To Blink (The Short Answer)

by Marcus Walker

Wall Street Journal
April 29, 2016

The Greek bailout saga has entered another one of those tense periods when the whole deal could fall apart. A compromise is needed. But it isn’t clear how to keep key creditors on board without testing Greece’s brittle politics to breaking point.

Exactly six years have passed since the first Greek bailout. Europe has kept deferring the hardest questions: Is Greece solvent? Is austerity alone a realistic fix, economically or politically? Do Germany & co. need to relieve Greece’s debts? Those issues have come back to haunt Europe, just as it’s suffering headaches over migration and Brexit. A breakthrough in May has become vital for avoiding another big Greek panic this summer.

Q: It's déjà vu all over again! What's the latest fight about?

A: The International Monetary Fund has lost patience with the strained math of the Greek bailout plan. It is refusing to lend Greece any more money, unless either the country enacts extra austerity to guarantee a high budget surplus, or eurozone countries led by Germany write down a lot of what Greece owes them.

Germany’s irascible finance minister, Wolfgang Schäuble, is taking a hard line against any debt relief. So the IMF, with German encouragement, is taking a hard line on Greek budget cuts.

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Greece and Its Creditors Make Progress on Differences

by Gabriele Steinhauser & Viktoria Dendrinou

Wall Street Journal
April 22, 2016

Greece and its creditors took a step Friday toward resolving disagreements that have hobbled the country’s international bailout program, including how to ease its staggering debt burden.

The creditors—eurozone governments and the International Monetary Fund—have been at odds for months about Greece’s economic outlook and the scope of the overhauls it needs, with the IMF pushing for further austerity for Athens to meet its budget targets.

That has stalled talks about what Greece needs to do to secure a new IMF loan program, thereby unlocking rescue funding from Europe as well.

To resolve the standoff, eurozone finance ministers at a meeting in the Dutch capital said Athens would have to come up with and put into law extra austerity measures worth 2% of gross domestic product—or about €3.6 billion ($4 billion).

The additional savings would be triggered only if the government missed its promised budget targets.

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Greek talks with lenders fraught as fears grow of default

by Helena Smith

Guardian
April 21, 2016

The Hilton hotel in Athens makes the perfect backdrop for high-intensity talks. Its ambience is subdued, its corridors hushed, its meeting rooms an oasis of tranquility.

When Greece, in one of its many stand-offs with the international creditors keeping it afloat, finally won the right to conduct negotiations outside the confines of government offices, it seemed only natural that they should be held at the hotel.

However, in recent weeks the talks have assumed an increasingly nervous edge. An economic review that should have been completed months ago has been beset by wrangling as Alexis Tsipras’s leftist-led government has argued with lenders over the terms of a bailout agreed last summer.

The €86bn (£67.8bn) rescue programme agreed in July 2015 – the debt-stricken country’s third in six years – followed months of high-octane drama that saw Athens being pushed to the brink of bankruptcy and euro exit. Now, less than a year later – and with a crucial meeting of eurozone finance ministers lined up for Friday – a sense of crisis has returned to Greece.

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The crazy reason we might be facing a huge crisis in Greece again

by Matt O'Brien

Washington Post
April 20, 2016

Sometimes it's hard to tell whether history is repeating itself as tragedy or as farce.

Greece, after all, has had plenty of both over the past eight years. Its economy has shrunk as much as the United States' did during the Great Depression, its government has collapsed over and over and over again as a result, and its bailout is in its third iteration — without which it would have been forced out of the euro zone. How bad are things? Greek Prime Minister Alexis Tsipras just touted the fact that his country's unemployment rate has fallen from 26.5 percent to 24.9 percent, and that there was a month last year in which Greece's industrial production grew faster than anyone else's in Europe.

When life doesn't even give you lemons, you have to pick cherries instead.

Greece might not even be able to do that, though, if it starts fighting over its bailout terms again. That would bring back the fear that it wasn't going to stay in the euro zone, and, consequently, the incentive for people to pull all of their euros out of the country's banks before they could get turned into drachmas that wouldn't be worth anywhere near as much. Its underwhelming recovery would become none at all.

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Greece Creditors Push for More Austerity

by Marcus Walker & Nektaria Stamouli

Wall Street Journal
April 18, 2016

Greece’s creditors have agreed to press the country for additional austerity measures if it falls short of budget targets, a move that papers over disagreements between the lenders but could test the stability of Greece’s fragile government.

European Union institutions and the International Monetary Fund are set to resume talks in Athens on Tuesday and Wednesday after reaching a deal among themselves in Washington at the weekend. The IMF and the EU’s executive arm, the European Commission, agreed to reconcile their differing views on Greece’s budget outlook by demanding an extra austerity package of about 2% of Greece’s gross domestic product, or €3.6 billion ($4.1 billion).

The package would be triggered only if Greece falls short of targets over the next three years. But the proposals, which come on top of a list of austerity measures already being negotiated, would have to be passed into law now—posing a stiff test for the governing coalition of Prime Minister Alexis Tsipras, which has a majority of only three seats in parliament.

Greek officials are resigned to having to sign up to the full set of budget cuts, totaling around €8 billion. They are hoping that in return, creditors will give Greece a concrete promise of major debt relief, a political prize that could help Mr. Tsipras sell unpopular belt-tightening.

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Greece’s Creditors Weigh Extra Austerity Measures to Break Deadlock

by Marcus Walker & Viktoria Dendrinou

Wall Street Journal
April 16, 2016

Greece’s creditors are considering seeking extra austerity measures that would be triggered if Athens misses its fiscal targets, in a bid to bridge differences between Europe and the International Monetary Fund and break a deadlock threatening to unravel the Greek bailout.

Under the proposal, say officials involved in the discussions, Greece would have to sign up to so-called contingency measures of up to about €3 billion, on top of the package of about €5 billion in tax increases and spending cuts Greece and its lenders are already negotiating.

The country would only have to implement the extra measures if falls short of targeted budget surpluses for coming years that were set out in last year’s bailout agreement, the officials say.

The idea, which has support from the eurozone’s dominant power Germany, hasn’t yet been agreed upon, and officials on the creditors’ side say it would be politically hard for Greece’s embattled government to swallow.

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Eurogroup head sees no Greek debt breakthrough this week

Reuters
April 14, 2016

There will be no breakthrough on unlocking new loans for Greece in Washington this week, but euro zone ministers will seek a deal next week in Amsterdam that could pave the way for debt relief talks, a top euro zone official said on Thursday.

"In Amsterdam we will have more time, everyone around the table and try to really get somewhere," the chairman of euro zone finance ministers, Jeroen Dijsselbloem, told reporters on the sidelines of International Monetary Fund and World Bank meetings in Washington.

He said euro zone lenders were adamant that the key to a deal was sticking to the assumption that Greece's government had to reach a 3.5 percent of GDP primary surplus in 2018.

"I don't see any flexibility on the 3.5 percent in 2018 because it was one of the anchors of the agreement of last summer. So that's going to take a huge effort on the part of Greece but I think it can be done," Dijsselbloem said.

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Why Greeks' swap of cash for cards could end a culture of tax evasion

by Sara Miller Llana

Christian Science Monitor
April 11, 2016

Mary Plakaki likes to carry cash on her at all times. So when Greece limited the amount of withdrawals last summer to avoid financial catastrophe, she got her first debit card. Now she uses the card for whatever purchase she can, so that her stockpile of on-hand cash is always full.

Math student Tassos Tassoulas uses his debit card for the opposite reason. Ever since he was pickpocketed, he prefers his wallet as thin as possible. He now carries 30 euros max.

And for retired politician Ioannis Varvitsiotis, the new use of his debit card has less to do with cash flow and more to do with convenience, he says – and the fact that it’s simply the correct thing to do. Today he refuses to eat at a restaurant if it doesn’t accept electronic payment.

For all of the hardship that capital controls have placed on Greek society, there’s been one upside: across generations and class and for differing motivations, more Greeks are turning to plastic, in a nation where cash has always reigned. It’s what Aristides Hatzis, an associate professor of law and economics at the University of Athens, calls an eight-month “natural experiment in cards.”

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