With the Athens stock market plunging on the first day of trading after a five-week closure, capital controls still in place, business activity all but stalled, and ongoing political instability, there’s relatively little to celebrate in Greece.
Nevertheless, following the chaos of the last few months, Greece’s lenders like to highlight even the smallest successes.
After some to-ing and fro-ing, the negotiators representing the group of lenders – the European Union, European Central Bank, International Monetary Fund and European Stability Mechanism – have finally been able to move into their usual hotel, the Hilton in the center of Athens, and have access to the ministries. On Friday, the representatives of the newly named quadriga started talks with Greek officials over the country’s third bailout in five years.
The European Commission in particular cannot seem to heap enough praise on the little progress that has been made. It believes that talks on the €86 billion rescue program are going well.
“They want an agreement at any price,” says one representative of the euro zone, referring to the Greek government.
The French finance minister, Michel Sapin, in an interview with Handelsblatt also voiced praise for Athens. “Neither in Germany nor in France would so many reforms have been approved in only one week. I can see that things are progressing,” he said.
One representative of the quadriga has warned that a "Graccident" is still possible - an accidental Grexit because an agreement was not reached in time.
Some countries, including Germany, are much more reserved. And among the lenders’ technical teams, not everyone shares the euphoria of their colleagues in Brussels; although relations with the government in Athens are reported to have “improved,” they have not yet “normalized,” sources told Handelsblatt.
The fact that even this scant progress is being celebrated is probably due to the extreme time pressure. Greece has to transfer €3.2 billion to the ECB on August 20. The first tranche of bailout money will need to be disbursed by then. In Berlin, this schedule is considered to be more than ambitious.
At the same time, however, many euro zone countries reject the idea of another bridging loan, following the €7 billion the country received in July from a European bailout fund.
Given the difficult situation, one representative of the quadriga has warned that “the risk of bankruptcy has not been averted,” and says that a “Graccident” is still possible, i.e. an accidental Grexit because an agreement was not reached in time.
There are a number of potential stumbling blocks.
The Greek government is divided, with almost 40 members of the radical left Syriza party refusing to back Prime Minister Alexis Tsipras’ decision to implement austerity in exchange for the bailout loans.
While Mr. Tsipras has managed to quell the rebellion for now, with the party agreeing to hold a conference on strategy in September, after a bailout deal is done, the lingering political instability is an unwelcome complication for the Greek side.
On Monday, the Athens Stock Exchange opened for the first time since June 26, just before the capital controls were introduced. Analysts had been expecting significant losses after the five-week closure. At 9:45 a.m. CET stocks on the blue-chip Index were down 23 percent in early trading. By mid-morning they had recovered to around minus 17 percent.
Banking shares were particularly badly hit, with Alpha Bank, Attica Bank and Eurobank Ergasius, Bank of Piraeus and the National Bank of Greece all opening around 30 percent lower – the daily limit.
“Naturally, pressure is expected, markets will not fail to comment on such an extensive shutdown,” Constantine Botopoulos, head of Greece’s capital markets commission, told Skai radio on Monday.
“But we must not get carried away. We must wait until the end of the week to see how the reopening will begin to be dealt with more coolly.”
The stock market had shut when the Greek government closed banks on June 29 after Mr. Tsipras called a July 5 referendum on the creditor’s bailout offer. Although the “no” side, which he supported, won by over 61 percent, he then opted to agree to lenders’ demands after all.
Yet, as the talks on the bailout continue, capital controls are still in place, meaning economic activity has all but stalled. Greeks can only withdraw €420 a week, making it difficult for businesses to operate.
And in an indication of just how severe the shock has been to the Greek economy, figures released on Monday showed that Greek manufacturing activity plunged in July to its lowest level on record. The PMI index for manufacturing plunged from 46.9 in June, to 30.2 points in July. Anything below 50 denotes contraction.
Meanwhile, Greece’s finance minister, Euclid Tsakalotos, has announced that he does not believe that further acts of reform, or “prior actions,” will be necessary before negotiations can be concluded.
In July the Greek parliament passed two bills containing a number of reforms, which were a condition for opening the bailout talks. Greece’s lenders are demanding a whole range of other immediate measures. However, Brussels is reported to be willing to postpone several particularly controversial reforms in Greece until the fall.
This, in turn, has bothered the IMF. Until Athens has shown that it is willing to implement reforms, the IMF does not want to commit itself to participating in the third bailout program. This also applies to debt sustainability: the IMF is demanding that euro zone countries waive some of Greece’s debt. If there is no actual debt relief, it at least wants Europeans to significantly extend their loan periods. However, the euro zone countries do not want to discuss this until the fall at the earliest.
The conflicts over the Greek bailout have exposed the fragility of the euro zone, and rekindled the debate about reforming the 19-country monetary union.
Experts from the European governments want to discuss possible measures by the fall. The problem is everyone involved wants different things. The French president, François Hollande, was the first to stick his neck out, saying that a European economic government was needed in order to curb the crises in the European monetary union. He believes that this should include a European finance minister and a budget for the euro zone.
Germany’s finance minister, Wolfgang Schäuble, can also envisage this. But while he sees the idea as only workable if combined with stricter supervision of budgets, the French are more focused on a new pot of money than any relinquishment of national sovereignty – or at least that’s how it is perceived in Berlin.
Chancellor Angela Merkel is even more skeptical. She wants to see much better coordination and supervision of reforms. She had suggested years ago that a limited euro budget could be offered as an incentive.
Another potential area of conflict is the issue of where such an economic government should be based.
Jean-Claude Juncker, the president of the European Commission, would like to use it to strengthen his own organization in Brussels.
However, there is deep-rooted distrust of the European Commission in Berlin, which has been further vindicated by the commission’s relatively soft line on the Greek bailout.
Ms. Merkel wants to have as much as possible decided by the governments of euro zone countries and as little as possible by Brussels. Mr. Schäuble has recently suggested that if the commission continues to act more politically then certain powers, such as enforcing competition rules, should be transferred to independent bodies instead.
Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. Siobhán Dowling is an editor with Handelsblatt Global edition and contributed to this article. To contact the author: firstname.lastname@example.org