Greece and Creditors Spar Over Legislation Changes

by Nektaria Stamouli

Wall Street Journal
May 30, 2016

Greece is arguing with its international creditors about a few small but politically sensitive measures creditors want implemented before they release some €7.5 billion ($8.4 billion) of badly needed bailout funds.

A teleconference between Greek officials and representatives of the country’s lenders failed on Sunday to reach agreement on whether and how Greece should amend recent legislation to comply with the conditions of its bailout program.

Creditors, represented by the European Commission, other eurozone institutions, and the International Monetary Fund, say Greece must make specific changes to recent laws on areas including banking regulation, retiree benefits, and privatization. But Greek Finance Minister Euclid Tsakalotos has written a letter to the commission, the IMF and the European Central Bank saying his government can’t carry out all of the lenders’ demands, according to Greek officials, citing political obstacles.

Greece needs its bailout funding by mid-July at the latest, when it must repay heavy debts, including bonds held by the ECB. Considering the amount of legislation that has already passed, it is unlikely the deal would be scuttled over the issues.

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European Money Doesn’t Like Greece

by Mark Whitehouse

Bloomberg
May 30, 2016

Greece and its creditors may have averted a crisis by agreeing on the release of another dose of bailout money, but the deal does little to address a deeper problem: Europeans still don't want to put their money there.

The flow of capital between the rest of the euro area and Greece offers a useful indicator of confidence in the integrity of the currency union. It can be tracked by looking at the Bank of Greece's liabilities to other central banks in the currency union -- a number that rises, for example, when concerns that Greece will abandon the euro prompt people to move currency out of the country.

The ascendance of Prime Minister Alexis Tsipras's leftist Syriza party to power, and its prolonged standoff with creditors, prompted an exodus: During the year through June 2015, an amount equivalent to more than 40 percent of Greece's annual economic output fled the country. This stopped after Tsipras did a U-turn in July, agreeing to harsh deficit-reducing measures in return for more loans. Not much private money, though, has come back since then -- reflecting both the effect of capital controls and persistent concerns about whether Greece will remain in the euro area.

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Greece’s debt deal is not a game-changer

by Yannis Palaiologos

Financial Times
May 27, 2016

On Wednesday, Greece’s creditors agreed to release more than €10bn in bailout money and to consider ways of restructuring the country’s debt. Some breathed a sigh of relief that a renewed escalation of the Greek debt crisis had been averted. Others observed that, once again, the path of messy compromise had been chosen and the day of reckoning postponed.

It is useful to recall how we got here, and ask whether there is any chance that Greece will escape the fate of being seen as Europe’s eternal problem child. The thoughts of seasoned observers of Greece’s travails over the past half-decade will have turned back to the spring of 2010, the early days of the crisis, when there appeared to be some movement on the issue of possible relief to go along with any eventual bailout programme.

The International Monetary Fund, its fingers burnt in the Argentine debt crisis of 2001, seemed resolved not to make big loans to members unless it could be near-certain that their debt was sustainable, which Greece’s clearly was not. There were meetings between IMF staff and French and German officials. In Athens, the investment bank Lazard did a study on ways to lighten the country’s Olympian debt load.

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Deal Between Greek Creditors Doesn’t End Saga

by Marcus Walker & Gabriele Steinhauser

Wall Street Journal
May 25, 2016

A truce between Greece’s creditors averts an immediate panic over Greek bankruptcy this summer, yet as officials and onlookers digested the deal, it became apparent that less was agreed than meets the eye.

The deal, struck in the small hours of Wednesday morning at the Eurogroup meeting of eurozone finance ministers in Brussels, broke an impasse between Germany and the International Monetary Fund that was holding up Greece’s bailout funding for this summer.

But by papering over deeper differences, the deal sets up tough haggling over the country’s debt and economic overhauls for this fall and beyond.

The main breakthrough, heralded by German Finance Minister Wolfgang Schäuble, is that the IMF agreed in principle to rejoin the Greek bailout effort this year with new loans. In return, Germany and other eurozone countries pledged to restructure Greece’s rescue loans in 2018 “if…needed.” That promise fell short of the IMF’s demand that Europe should decide now how it would relieve Greece’s debt in coming years.

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Greece’s Inconclusive Debt Deal

by Simon Nixon

Wall Street Journal
May 25, 2016

Greece has a new debt deal—but then it was always going to get a new debt deal.

Time and again, the eurozone has demonstrated that it is bound together by impressive reservoirs of political will: not only the will of debtors such as the Greeks, for whom the euro is both a trusted store of value and a symbol of their common European destiny, but also the will of creditors, who have been unwilling to risk the great costs and inevitable political upheavals of a eurozone breakup. Indeed, the determination to reach a deal was even greater at a time the breakup of the European Union itself is on the table in the U.K.’s Brexit referendum.

Even so, the deal agreed on Tuesday night is hardly the decisive break in the Greek debt crisis originally envisaged under the bailout deal thrashed out last summer. By now, Athens was supposed to have undertaken far-reaching reforms of its tax and pension system, the eurozone to have delivered meaningful debt relief, and the International Monetary Fund to have agreed to help finance the program.

Instead, Greece has promised to tackle the reforms “if needed” to hit its 2018 budget target, the eurozone will deliver the debt relief “if needed” when the program ends in 2018, and the IMF will join the program by the end of this year, subject to technical clarifications. This is a classic euro-fudge, whose purpose is to kick the can decisively down the road, deferring the grittiest political decisions until 2017 and 2018.

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The IMF, Trying to Lend Europe Credibility for a Greek Bailout, Risks Losing Some of Its Own

by Ian Talley

Wall Street Journal
May 25, 2016

The International Monetary Fund acted tough on Greek debt relief. But it appears to have caved under pressure by its largest shareholders, the U.S. and Europe.

That means Greece’s economic crisis will likely continue to simmer. It also means the fund may again forfeit some of its credibility for the sake of the eurozone.

“The agreement does little to address the underlying problems the Greek economy is currently suffering,” IHS Global Insight economists Diego Iscaro and Blanka Kolenikova said of Europe’s fresh bailout deal. “The promises of debt relief are, in our view, too distant and vague to make a material impact on confidence.”

Facing German resistance to upfront debt relief, European, U.S. and IMF officials worried another Greek standoff could fuel global economic and geopolitical instability by giving leverage to proponents of a U.K. exit from the European Union.

“There will be no repeat of last year’s drama,” said Marc Chandler, global head of currency strategy at investment bank Brown Brothers Harriman.

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Just enough Greek debt relief to keep IMF on board

by Pierre Briançon

Politico
May 25, 2016

The finance ministers of the eurozone early Wednesday agreed on a new set of funding measures for Greece that was bolder than forecast but nonetheless falls way short of the radical steps needed to put Athens on a sound financial path.

One of the package’s most important consequences will be to allow the International Monetary Fund to continue participating in the Greek financial rescue after the Eurogroup of finance ministers agreed on the initial details of a debt-relief program for the cash-strapped country.

The finance ministers’ deal, reached after an 11-hour meeting, was deemed “a major breakthrough” by Eurogroup President and Dutch Finance Minister Jeroen Dijselbloem. But its only certain impact is that it will allow Greece to meet payments due this summer, thanks to the first disbursement of a €7.5 billion loan tranche next month.

Beyond that, six years after the Greek debt crisis shook the eurozone to its foundations, a Eurogroup deal may once again be seen as a messy compromise mostly aimed at playing for time. Once again, it can be criticized for skirting the radical decisions that would allow Greece to stand on a firmer footing. And once again, it will be seen as a cynical ploy to avoid those decisions because of electoral politics: in this case, postponing major choices until after the 2017 German elections.

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Eurozone and IMF Strike Deal on Greek Debt

by Viktoria Dendrinou & Gabriele Steinhauser

Wall Street Journal
May 25, 2016

Eurozone finance ministers and the International Monetary Fund patched together a deal in the early hours of Wednesday that clears the way for fresh loans for Greece and sets out how the country could get debt relief in the future.

The ministers, who held an 11-hour meeting in Brussels, said Greece had done what was necessary to unlock the next slice of financial aid, concluding a review of its bailout that was delayed for months. The new payouts will save Greece from defaulting on big debt redemptions to the IMF and European Central Bank in July.

“On the package of reforms Greece had committed to last summer, we now have full agreement,” said Jeroen Dijsselbloem, the Dutch finance minister who presided over the meeting of finance ministers.

Once all 19 eurozone countries have formally signed off on the new deal, Greece will get €10.3 billion ($11.48 billion) in fresh loans, starting with a €7.5 billion installment in the second half of June.

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Another missed opportunity for a more lasting deal to help Greece

by Raoul Ruparel

Open Europe
May 25, 2016

The Eurogroup yesterday reached an agreement on releasing further bailout funds to Greece as well as a partial agreement on debt relief. However, for the most part the tough decisions are once again delayed, leaving Greece in an uncertain position moving forward. Open Europe Raoul Ruparel explains.

What has been agreed?

You can find the Eurogroup statement here and the press release here which spell out the key points of the agreement.

Essentially the first review of the third Greek bailout is now completed and the funds – €10.3bn in total, €7.5bn in June – can now be released. This means Greece will avoid any extended funding dramas this summer and will be able to repay the maturing bonds held by the ECB (as always expected).

More interesting, is that there was a broader agreement on debt relief, though this mostly involved delaying the key decisions until 2018 – after the current bailout is completed. The key points are:

• Short term – use funding tools available to smooth Greece interest payments on Eurozone bailout loans.
• Medium term – after 2018 provide greater debt relief via some combination of: extending the maturity of Greek bailout loans, repaying profits on bonds held by the ECB to Greece and buying out the more expensive IMF loans using leftover funds from the bailout. Keep Greece funding needs under 15% of GDP per year.
• Long term – consider further steps to help Greece keep funding needs under 20% GDP per year. May create mechanism where these kick in automatically if funding need rises above threshold.

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How Greece Got Another Debt Deal

by Marcus Walker

Wall Street Journal
May 25, 2016

The deadlock between Germany and the International Monetary Fund which has held Greece’s bailout funding hostage this spring has been broken. The deal falls short of a definitive peace that resolves conflicts between Greece and its international creditors. Rather, it’s a truce that aims to keep the difficulties and tensions manageable for a while longer. But for how long?

Q: What Does the Deal Boil Down To?

A: The IMF told eurozone governments it will recommend a new Greek loan facility to its board – the precondition that Germany had set for releasing any further bailout funding for Greece. In return, the IMF got much less than it wanted in the way of reductions to Greece’s debt.

Instead of a European decision now to restructure Greece’s bailout loans progressively in coming years, the IMF won only a promise by Germany and other eurozone governments to review the situation in 2018, and to take measures “if…needed.”

The IMF said it still needs to crunch the numbers, thus withholding its final consent to rejoining the bailout as a lender. But that looks more like a face-saver than a usable escape hatch. It’s unlikely that the IMF can withdraw now, because it has already given in on the main question that divided the fund and Berlin. The IMF agreed last night that final decisions on debt relief will be delayed until the end of the bailout program, as Germany wanted.

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Greece reaches breakthrough deal with creditors

Financial Times
May 25, 2016

Greece’s international creditors have bought time to secure the country’s financial future after agreeing broad but inexact principles to ease its debt mountain and break an impasse between Germany and the International Monetary Fund.

After almost 11 hours of talks in Brussels, eurozone finance ministers and the IMF agreed to a range of measures to restructure Greece’s debts when its €86bn bailout ends in 2018 — but put no figures on the concessions and left them subject to political decisions by eurozone countries. Most significant decisions would be taken after the German federal elections next year.

Reacting to the news of the breakthrough on Wednesday, Greek 10-year bonds yielded under 7 per cent for the first time since November.

One of the debt relief options involves dramatically reducing the IMF’s exposure to the Greek programme by buying out up to €14.6bn of its loans. For now, the IMF said it would participate financially in the programme at some stage later this year — a crucial demand for Germany — but only if the eurozone committed to a scale of relief that meets the fund’s normal lending guidelines.

“We have achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme,” said Jeroen Dijsselbloem, president of the eurogroup.

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Greek police start to move migrants out of Idomeni camp

by Kerin Hope

Financial Times
May 24, 2016

Greek police have begun transferring refugees and migrants from a tent camp at Idomeni next to the shuttered border crossing with Macedonia to accommodation in the city of Thessaloniki.

The operation to close the site where more than 8,000 people have been camped out in overcrowded conditions will take about a week, said George Kyritsis, head of the government’s migration co-ordination unit.

More than 14,000 police officers, including riot squad units sent from Athens, sealed off surrounding roads early on Tuesday and instructed volunteers and aid workers to leave the camp. Journalists and television crews were kept 6km from the site.

Buses began transporting people from the camp shortly after 7am, while dozens left on foot. By evening, more than 2,000 people had been bussed to Thessaloniki, where they will be housed in newly refurbished former industrial premises, police said.

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IMF: Substantial Re-Profiling of European Loans to Greece is Required

by Ian Talley

Wall Street Journal
May 23, 2016

The International Monetary Fund said Monday Greece’s European creditors must give the country “upfront unconditional” debt relief to win additional financing from the emergency lender, setting the stage for contentious bailout talks among Eurogroup finance ministers Tuesday.

The IMF’s comments, made in an updated assessment of the measures needed to put the country’s financial obligations onto a sustainable path, are at odds with Europe’s more rosy outlook and resistance by powerhouse Germany to any type of debt relief for the Mediterranean nation. It puts to rest, at least for the moment, speculation the IMF might compromise on its increasingly strict line that Greece needs concrete, realistic and upfront debt relief to win fund support and ramps up the pressure on Europe to grant Greece a restructuring.

Greece needs the bailout cash to avert a debt default in July at the latest. Some in Europe, and many officials around the world, fear the Greek problem threatens to deepen fissures building in the European Union, including the possibility of a U.K. exit from the EU.

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The IMF and calling Berlin’s bluff over Greece

by Wolfgang Münchau

Financial Times
May 21, 2016

At one level, the recurring Greek crises fit the idea from Karl Marx of history repeating itself, first as tragedy then as farce. Greece came close to a eurozone exit last summer. While it will probably come close this year, it is unlikely to leave.

But prepare for some tense moments in the next few weeks and months as Greece and its creditors struggle to agree the first review of last year’s bailout.

The International Monetary Fund has concluded that Greek public debt, at 180 per cent of gross domestic product, is unsustainable; as is the agreed annual primary budget surplus, before interest payments, of 3.5 per cent of GDP. The fund insists on debt relief, but Germany resists.

A year ago Angela Merkel, German chancellor, and Wolfgang Schäuble, her finance minister, sold the Greek bailout to their party and parliament as a loan only. They argued that once you accept a debt writedown, you turn a loan into a transfer. And once you accept the principle of a one-off transfer to Greece, you are on a slippery road to what the Germans call a transfer union, one where they pay and others receive.

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IMF Said to Seek Delay of Greek Loan Repayments Until 2040

Reuters
May 20, 2016

The International Monetary Fund proposed that Greece shouldn’t make payments on its European bailout loans until 2040, underscoring key differences with euro-area lenders over the future of the Greek economy.

The Washington-based fund’s debt-restructuring proposal, contained in an IMF document obtained by Bloomberg News, goes much further than anything advanced by euro-area creditors who are locked in talks to trigger Greece’s next aid payout. Finance ministers from the currency union will meet on May 24 in Brussels to discuss the debt-relief options.

The IMF wants all payments on European loans granted to Greece since its first bailout in 2010 to be deferred until at least 2040 with maturities extended until 2080, according to the note. Interest payments on loans from the euro area’s crisis fund would be fixed at a maximum 1.5 percent until at least 2045. The IMF’s projections for the Greek economy rely on a baseline assumption that debt will rise to 293.8 percent of gross domestic product by 2060 without the proposed measures.

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Why the IMF must walk away from Greece

by Meg Lundsager

Reuters
May 17, 2016

The depth of distrust between Greece and its creditors grows increasingly clear as both sides resume negotiations for a new bailout program.

The International Monetary Fund is demanding more European debt relief for Greece -- at a minimum, a longer payback period on its European Union loans. But Germany insists that the fund lend to Greece even if Athens receives no immediate additional debt relief. More relief would not be needed for “the coming years,” German Finance Minister Wolfgang Schaeuble said.

Yet, additional IMF loans would only paper over Greece’s economic problems and postpone the reforms Athens needs to make to remain in the euro zone. Instead of more loans, the IMF should force Greece and its creditors to come up with long-term compromise solutions.

Given Greece’s poor record in meeting previous loan conditions, the Europeans seek Greek parliamentary approval of additional budget measures, imposed if Athens fails to meet its targets. This course would leave Greece still uncertain if, or how, its creditors might ease its debt burden. Such economic brinksmanship would also offer Greece little hope of real solution -- which would include restoring private-sector confidence, attracting foreign investment and restarting growth.

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IMF Wants Eurozone Debt Relief for Greece Until 2040

by Marcus Walker

Wall Street Journal
May 17, 2016

The International Monetary Fund is pressing the eurozone to let Greece skip paying interest or principal on bailout loans until 2040, say officials familiar with the talks.

The IMF wants the loans to Greece to fall due gradually in the following decades, and as late as 2080, according to the IMF’s proposal.

Greece’s interest rate on eurozone loans would be fixed for 30 to 40 years at its current average level of 1.5%, with all interest payments postponed until loans start falling due, under the IMF proposal.

The IMF’s proposal, presented to eurozone governments late last week, would keep Greece’s annual debt-service needs below 15% of its gross domestic product, under the IMF’s relatively pessimistic forecast for Greece’s long-term economic trajectory.

The IMF’s demands go far beyond what Greece’s eurozone creditors have said they are willing to do to help Greece regain its financial health.

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Greek Bailout Deal Must Have Concrete Debt Relief, State Minister Says

by Ian Talley

Wall Street Journal
May 13, 2016

Greece will not accept a bailout deal without a concrete agreement for debt relief from the country’s European creditors, a top aide to Prime Minister Alexis Tsipras said.

“We want real solutions, not interim solutions,” Nikos Pappas, Greece’s Minister of State, said in an interview Friday after several days of talks with senior U.S. officials. “No more kicking the can down the road.”

Although Mr. Pappas said he’s “very optimistic” Greece and Europe will seal a final accord on debt relief by May 24, his comments underscore the hurdles ahead as the Athens government tries to negotiate fresh financing to keep the country’s finances afloat.

Without fresh bailout funds, Greece faces bankruptcy in July at the latest. That could revive risks across the eurozone, which is already grappling with a migration crisis, a movement in the U.K. to leave the European Union and the rise of populist parties across the continent.

European powerhouse Germany is pushing Greece and the IMF to accept another bailout agreement based on possible debt relief in the future. The fund, trying to regain credibility it lost in the first two failed Greek bailouts, is taking a firm stand on debt restructuring. It wants defined commitments that would definitively reduce the country’s obligations in exchange for further budget tightening.

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Real Greek Drama Is About Reforms, Not Debt Relief

by Simon Nixon

Wall Street Journal
May 11, 2016

Greece is invariably held up as Exhibit One in the case against the European Union. Its six-year debt crisis—now threatening to reignite right before a British referendum on EU membership—is often presented as proof that the EU is an anti-democratic, sovereignty-destroying, austerity-loving bully. But this narrative is wide of the mark. The starting point for any debate is to recognize that most of the blame for Greece’s problems lies with Greece itself, which in the decades before the crisis embraced a catastrophically unsustainable economic model and has largely refused to change it since.

For sure, mistakes were made in the design of the country’s first bailout: It would have been better for Greece, if not the eurozone, if government debt had been restructured in 2010 rather than in 2012. And it is true the program’s fiscal targets have been demanding, as they always are when a country is obliged to rely on other countries’ taxpayers to service their debts and fund their state. But Greece has always had full sovereignty to choose how to hit those targets—and much of the calamity that has since unfolded stems from how successive governments exercised that sovereignty.

Over decades, Greek governments of left and right built an egregiously generous welfare state and lavished protections on a wide range of interest groups, funding their largess via reckless borrowing and by levying ever-higher taxes on an ever-narrower base of taxpayers. When the crisis hit, Athens didn’t abandon this model. It doubled up on it.

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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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