Creditors Group

From Troika to Quadriga

ATHENS, GREECE - JULY 18:  Greek Prime Minister Alexis Tsipras is seen during a swearing-in ceremony where the new appointed ministers attended, in front of the Greek bishops at the Presidential Palace in Athens, on July 18, 2015. Left-wing Syriza party, led by Alexis Tsipras has shuffled the cabinet  yesterday due to conflict with some ministers. Ayhan Mehmet / Anadolu Agency Keine Weitergabe an Drittverwerter. [ Rechtehinweis: Nutzung nur in Deutschland, Österreich, Schweiz und den Niederlanden, Keine Weitergabe an Drittverwerter., usage Germany, Austri ]
There's no summer vacation for Alexis Tsipras - too many negotiations to conclude.
  • Why it matters

    Why it matters

    A bailout deal is desperately needed to allow Greece to pay its looming debt repayments and get the stalled Greek economy going again.

  • Facts


    • Greece is commencing talks this week with its creditors, the E.U., ECB and IMF, along with the ESM bailout fund.
    • The real talks get under way when the new head of the IMF Greece mission, Delia Velculescu, arrives in Athens on Thursday.
    • A deal is needed by August 20, when a €3.4 billion payment is due to the ECB.
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Most people travelling to Greece can expect sun, sea, and a warm welcome from the locals.

However, the representatives of the country’s lenders now arriving in Athens are in for a much cooler reception.

“Return of the troika monsters,” read a headline on Saturday on Iskra, a website run by hard-left members of the ruling leftist Syriza party.

Syriza was elected six months ago on a platform of kicking out the troika, and tearing up the so-called Memorandum of Understanding, Greece’s bailout agreement with lenders that committed the country to tough austerity.

Syriza had promised to lift the yoke of austerity and stop talking with the troika, while keeping the country in the euro.

But it couldn’t do that, at least not yet.

In a humiliating climb-down, the same government led by Prime Minister Alexis Tsipras is now re-starting talks with the same trio its own supporters demonize: the European Commission, the European Central Bank, the International Monetary Fund — plus representatives of the European Stability Mechanism, the bloc’s bailout fund.

The expanded creditor group even has a new name: the Quadriga.

While initial talks with some mid-level officials commenced on Monday, the real talks will only get going later in the week after the IMF’s new representative, Delia Velculescu, arrives in Athens on Thursday.

It’s a tough political coming of age for Mr. Tsipras, the young prime minister who has had to renege on many of his own election pledges to keep his country in the euro. By doing so he is provoking a rebellion inside his own party, where he is being attacked by leftist hardliners.

“The priority now should be to do the deal and try to normalize the situation.”

Theodore Pelagidis, professor of economics, University of Piraeus, Athens

Mr. Tsipras, who was forced to accept yet more austerity and reforms as part of the new bailout agreement at the make-or-break summit two weeks ago, has insisted that he was effectively blackmailed to accept the conditions to keep Greece in the euro.

As part of that deal, the Greek parliament pushed through two sets of bills earlier this month, the required “prior actions” before bailout talks could even commence. He also agreed to a new fund that would privatize state assets to the tune of some €50 billion.

The task he now faces is to come to an agreement on a three-year bailout loan, amounting to some €86 billion.

Both sides have said they hope that the new bailout will be finalized before August 20, when Athens faces a €3.4 billion payment to the ECB. That is followed by a €1.5 billion payment due to the IMF in September.

The creditors’ initial goal was to complete talks by August 11, in order to allow a bailout to be approved by the Eurogroup and then be ratified by parliaments ahead of August 20.

However, the talks could hit a major stumbling block if the lenders insist on further prior actions, such as on the retirement age and the way farmers are taxed.

Oxi campaign imago florian schuh
They were loud, creative – and eventually successful: The “No” faction. Source: Imago/Florian Schuh



The Greek government decided not to include these measures in the two bills it pushed through parliament already this month, but the lenders may insist on them before approving the ESM loan.

On Monday, European Commission spokeswoman Mina Andreeva suggested that Athens would have to do more.

“More reforms are expected from the Greek authorities to allow for a swift disbursement under the ESM. This is also what is being discussed right now,” she said.

However, Greek officials have said that there is no question of more reforms before a bailout deal.

“For the government, there is no question of additional prerequisite measures,” a government source told Greek news agency AMNA. The official added that such a demand has not been made to Athens by creditors.

According to Theodore Pelagidis, professor of economics at the University of Piraeus, Athens, the time frame means “there is no time for other prior actions.”

“The priority now should be to do the deal and try to normalize the situation,” Mr. Pelagidis, who is also a senior fellow at the Brookings Institution, told Handelsblatt Global Edition.

According to Yannis Koutsomitis, a euro zone analyst based in Athens, the two sides will want to see a deal by August 20. “They want to avoid any other solutions because they know it would be very problematic with some countries to accept a new bridging loan.”

Earlier this month Greece received a €7 billion bridging loan from the dormant European Financial Stabilization Mechanism, which was then immediately used to pay off loans to the IMF and ECB.

The involvement of the Washington-based IMF in the third bailout could also cause tensions.

While the IMF has made it clear it thinks Greece needs some sort of debt relief to make any further bailout have a chance of success, many of the European countries, in particular Germany, say that a haircut is not on the table. However, the Germans also say that they won’t participate in any bailout unless the IMF is also on board.

In an indication of potential divisions on the creditor side, ECB Executive Board member Benoit Coeure told French daily Le Monde this week that the euro zone no longer questioned whether to restructure Greece’s debt but rather how best to go about it.

“That’s why it’s important to make this restructuring, whatever form it takes, conditional on the application of measures that reinforce the economy and ensure the sustainability of Greek public finances,” he said.

Greece desperately needs a deal to get its economy moving again. Capital controls are still in place, although banks that were shut for weeks have reopened. Many businesses are struggling to stay afloat and it is unlikely that the banks will be able to operate normally until a final deal is done.

While those have who opposed the deal argue that it won’t allow Greece to fully recover, Mr. Pelagidis argues that the external environment is better now than a few years ago, when Greece was previously forced to apply for bailout loans to avoid insolvency.

“The euro zone growth rate is gradually but steadily getting better, there’s an ECB program steadily mutualizing euro zone debt and there are some proposals calling for a euro-zone government,” he told Handelsblatt Global Edition. “I think we will see positive changes and that will help Greece recover.”

In addition, Mr. Pelagidis argues that the new bailout program will be less arduous than the previous two. “They involved much harder fiscal adjustment, we had to cut wages and pensions. The focus of the third program is supposed to be structural reforms.”

Mr. Koutsomitis sees the way the public reacts to the deal as crucial in whether or not it can succeed. “If there is a sentiment that this could be the way out and there could be hope for real recovery, I think even this bad plan can succeed.”

“But if there is an overall sense of defeat, and there is no hope, then even the best plan is doomed to fail because no one would invest, people would refrain from consuming.”

Bailing Out Greece-01

In order to achieve this sense of optimism, Mr. Tsipras has to strike a balance between reaching a compromise with his creditors while not alienating more of his leftist supporters.

He also has to deal with questions about how much he knew about the plans of his former finance minister Yanis Varoufakis to reintroduce the drachma based on IOUs.

In a teleconference with hedge fund managers on July 16, 10 days after he had quit and just a few days after the E.U. summit, Mr. Varoufakis revealed that he had been working on a Plan B for Greece since December, before the government was elected.

Greek newspaper Kathimerini also reported over the weekend that Mr. Varoufakis and former Energy Minister Panagiotis Lafazanis, a Syriza hardliner, had discussed a plan to raid the central bank’s reserves and hack into taxpayer accounts.

Mr. Varoufakis said he had hired a friend who was an IT specialist months ago to hack into the Greek tax system to get information needed to set up a parallel payment system.

On Monday afternoon Mr. Varoufakis’ office released a statement denying he had been working toward a Grexit, and said the report contained “erroneous references to ‘hijacking tax file numbers of all taxpayers.’”

Mr. Varoufakis quit on July 6 rather than back Mr. Tsipras’ decision to agree to the lenders’ conditions for a third bailout despite winning a referendum that rejected their offer.

Many other members of Syriza have also refused to back Mr. Tsipras. In total of the 149 party lawmakers, almost 40 have voted against or abstained from backing the bailout talks. However, Mr. Tsipras has the backing of the pro-European opposition parties.

While he can rely on the opposition for now to get any bailout deal passed, Mr. Tsipras may opt to go for new elections later in the year. If he can control who from Syriza is included on the ballot papers it would allow him to clear out the hardliners.

“It will be a different political landscape after that,” said Mr. Koutsomitis, “Because even if he can’t achieve an absolute majority it would be easier to form a coalition with pro-European parties.”

First though he has to get through the bailout talks. It is only if the third bailout is signed and sealed, and Greece satisfies the Quadriga that it is implementing reforms seriously, that the prospects of a Grexit will really dim.

“We don’t have a final agreement with the euro zone and the IMF on the new bailout and political stability is not in place,” said Mr. Koutsomitis. Once there is a loan agreement and a successful first review, with talks on debt relief concluded, he argued, then “I think we could say that Grexit is off the table.”

Siobhán Dowling covers European politics for Handelsblatt Global Edition. To contact the author:

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