Tense Talks

Sweetening the Deal

Alexis Tsipras has to decide whether to accept - or decline.
  • Why it matters

    Why it matters

    The new plan could prevent Greece from falling into bankruptcy and leaving the 19-nation euro zone – at least for now.

  • Facts


    • Creditors want to help Greece make it through the summer by re-designating €10.9 billion earmarked for Greek banks and making the funds available to Athens instead.
    • Reform demands include increasing value-added taxes on some products, and pension cuts. A concession has been to reduce the primary surplus demanded of Greece in the current bailout program from 3.5 percent of GDP to 1 percent.
    • The International Monetary Fund has bought time by allowing Greece to delay a €300 million payment due Friday. IMF debts totaling €1.6 billion will be bundled instead and paid at the end of this month.
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The Europeans have extended one more olive branch to Greece, holding out the prospect of additional financial aid that will get the cash-strapped Mediterranean country through the coming summer months, Handelsblatt has learned.

But the new money funds, totaling nearly €11 billion, are conditional on Greece agreeing to a slimmed-down reform package, something that remains highly in doubt as Greek Prime Minister Alexis Tsipras continues to resist committing to the kinds of structural reforms demanded by the country’s international creditors.

The new offer marks the climax of a grueling week of negotiations between Greece, the European Union and the International Monetary Fund. If the last-gasp talks fail, it could force Athens to declare bankruptcy and even exit the 19-nation euro currency.

The IMF has also done its part to buy the negotiators a little more time – the end of this month at the latest – before Greece runs out of money.

According to the Washington-based fund, Greece is taking advantage of a rarely-used provision to bundle its debt repayments to the organization. That means it doesn’t have to pay the IMF €300 million on Friday – instead it has to pay a full €1.6 billion due by the end of June.

The negotiators need all the time they can get. Sources said that nightly negotiations between European Commission President Jean-Claude Juncker and Mr. Tsipras have produced some positive results but no conclusive outcome.

Greece’s donors are hoping a new offer of extra money might finally break open the impasse.

Before any of this can happen, Athens and its donors will have to agree on a package of reforms.

As Handelsblatt has learned from donor circles, if Athens promptly agrees to a reform plan with the European Union and the IMF, it could not only receive an outstanding €7.2 billion, or $8.1 billion, due from its current bailout program. Greece’s donors are also considering freeing up €10.9 billion that had been earmarked for the recapitalization of Greek banks and making those funds available to Athens.

The money is intended to help Greece’s government make it through the summer.

In the assessment of the European Union, the European Central Bank and the IMF, the €7.2 billion currently on the table would not be enough to last that long. Athens is already scheduled to make a payment of €6.7 billion owed the ECB in July and August.

As a central bank, the ECB can hardly forego the funds it is owed from Greece. According to insiders, the re-designation of the funds intended for Greek banks could be an option to get the ECB its money.

Another option – putting together a controversial third aid package for Greece – is not likely to happen quickly enough, if at all. After nearly €240 billion in bailout money already flowing to Greece over the last five years of its debt crisis, a third package has been resisted by many policymakers, especially in Germany.

But even handing over the €10.9 billion would require yet another extension of the current program, a plan that has raised concerns in some euro countries, including Germany. The German parliament, the Bundestag, would have to approve this solution, too.

Before any of this can happen, Athens and its donors will have to agree on a package of reforms that the Greek government will implement. So far, the donors’ concessions on reform requirements have not been sufficient for Mr. Tsipras.

“We have made some headway, but not all problems have been solved yet,” said Commissioner for Economic and Financial Affairs Pierre Moscovici.

According to Mr. Moscovici, there has been “some convergence” on the issue of which primary surpluses Greece must achieve this year and in the coming years. The donors made concessions to the Greeks.

The current bailout program actually requires Athens to report a primary surplus – that is, without taking interest payments into account – of 3.5 percent of GDP for this year. In their latest offer, the European Union, the ECB and the IMF reduced the primary surplus requirement to 1 percent.

Officials close to the European negotiators said this is the absolute lower limit. But apparently it still isn’t enough for Mr. Tsipras. Some of the donors’ demands “cannot be viewed as a basis for discussion,” said Mr. Tsipras.

For the donors, the key question is whether the Greek premier will come around, even if it means facing criticism in Athens.

After returning from negotiations in Brussels this week, Mr. Tsipras immediately called top cabinet ministers and close advisors together for a crisis meeting. Leading politicians in the left-leaning ruling party, Syriza, had rejected the donors’ demands.

In particular, the demands that Greece increase value-added taxes on energy bills, restaurant bills and medication, as well as pension cuts, have encountered strong resistance.

“It won’t be approved,” Social Security Minister Dimitris Stratoulis, a leader of Syriza’s extreme left wing, said categorically. According to Mr. Stratoulis, the donors’ demands “amount to the extermination of Greek retirees.”

Several Syriza politicians, including the president of the parliament, Alexis Mitropoulos, have called for new elections, saying that the donors’ proposals were “a declaration of war.”


Ruth Berschens is Handelsblatt’s bureau chief in Brussels. Jan Hildebrand leads political coverage for Handelsblatt in Berlin. To contact the authors: Berschens@handelsblatt.com and Hildebrand@handelsblatt.com

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