Ultimate Ultimatum

This Time, Greece, It's Serious

Tsipras-EUParliament-Reuters
Could we get that in writing, Mr. Tsipras?
  • Why it matters

    Why it matters

    If no financial aid for Greece is agreed by Sunday, the country’s banks are expected to go bankrupt on Monday. “Grexit” would most likely follow.

  • Facts

    Facts

    • Greece’s prime minister and finance minister met their 18 euro zone counterparts for a day of meetings in Brussels Tuesday, but failed to submit a written proposal.
    • The Greek government has been given until Thursday to submit a comprehensive plan for financial aid and reforms, with another emergency E.U. summit planned for Sunday.
    • Greece’s banks will likely remain closed through Friday, marking two weeks since they first shut their doors to the public.
  • Audio

    Audio

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Despite a looming bankruptcy, Greek Prime Minister Alexis Tsipras seems to be taking his sweet time. A summit of leaders from the euro zone came and went on Tuesday without a formal proposal for emergency financial aid to keep the beleaguered Mediterranean country above water.

This despite a promise from Mr. Tsipras that, after the Greek public’s emphatic “no” to more austerity-driven bailouts in a referendum on Sunday, he would be able to secure a new and better aid deal for Greece within 48 hours.

Tuesday was supposed to be the final deadline for Greece to submit a revised aid plan to be considered by the other 18 euro zone leaders, many of whom are already extremely reluctant to give Greece the additional financial support it seeks to avoid the bankruptcy both of its government and its banks.

Some have suggested Mr. Tsipras was unprepared because he never expected to be in this dilemma in the first place. Britain’s Daily Telegraph reported Mr. Tsipras was gambling that the Greek public would in fact vote “yes” to the E.U.’s bailout plan on Sunday, allowing the leftist leader who campaigned for a “no” to resign and keep his integrity as a rebel firebrand intact.

Instead, Mr. Tsipras now holds the country’s future in the euro in his hands. But compromise with Greece’s creditors could mean a major split in his leftist Syriza party, many of which are demanding Greece leave the euro rather than sign up to the kind of austerity that Europe has demanded for the past five years.

To allow Mr. Tsipras some breathing room, the deadline for reaching an agreement has been pushed back one final time – to Sunday. But this time, it really is the end of the line for Greece.

“All of us are responsible for the crisis and all of us have a responsibility to resolve it.”

Donald Tusk, E.U. Council President

“The final deadline ends this week,” Donald Tusk, the former Polish premier and current president of the E.U. Council in Brussels, said Wednesday in the European Parliament in Strasbourg where Mr. Tsipras also spoke.

Mr. Tusk noted there were just four days left to secure an “ultimate agreement” and added: “All of us are responsible for the crisis and all of us have a responsibility to resolve it.”

German Chancellor Angela Merkel, who leads a country where most of the public is demanding no additional taxpayer support for Greece, has publicly said she remains open to a compromise. Sources in Berlin say, however, that the German government sees barely any chance of reaching a deal in the short time that is left.

If Berlin sources are to be believed, then little now stands in the way of Greece becoming the first country to leave the 16-year-old euro currency bloc. Mr. Tusk said the failure to compromise by Sunday “will mean the end of the negotiations, with all the possible consequences, including the worst-case scenario, where everyone will lose.”

Not everyone is quite as pessimistic as Germany. Among those still loudly pushing for a solution that keeps Greece in the euro zone are France and the European Commission, whose president, Jean-Claude Juncker, on Tuesday emphasized in an emotional plea to parliament that his will was to “avoid Grexit.”

 

Greece Public Debt-01

 

But their optimism is being drowned out, not just by Germany but by a larger group of skeptics led by the northern Baltic states, whose own developing economies had to get their finances in order and implement tough reforms to join the euro.

So what now? Despite the slower than expected start this week, Mr. Tsipras assured in a speech to the European Parliament Wednesday that his government would submit a concrete detailed plan within the next two days.

A formal request for emergency aid from the European Stability Mechanism, the bailout fund that was created by E.U. leaders in the aftermath of Europe’s debt crisis, was submitted on Wednesday. The letter asks for a three-year bailout, but doesn’t name an amount, though the IMF has said Greece probably needs more than €50 billion over that period. Further concrete proposals will be laid out separately by the end of Thursday, Mr. Tsipras said.

After that, euro-zone finance ministers are expected to iron out their differences in another emergency meeting on Saturday before, assuming there is any hope of a deal left, all 28 E.U. leaders meet to sign off on a compromise on Sunday.

Greece’s demands are quite well known at this stage. The package Athens is seeking includes “reforms, financing, an investment program and a debt settlement,” according to the government.

Mr. Tsipras, the firebrand leader of the leftist Syriza that came to power in January, promised on Wednesday that his government was willing to implement structural reforms and tackle corruption and tax evasion. In return he called for a long-term solution to Greece’s poor finances, one that included a stimulus package to help grow Greece’s struggling economy, and “no taboos” over the sorry state of Greece’s massive government debt burden.

It’s a package that Athens insists is needed to pull the country’s economy out of its deep, deep economic crisis. Greece’s economy has shrunk by nearly a third in the last five years, and more than one quarter of the country’s population remains out of work.

It is the debt writedown that Germany in particular has rejected most strongly, partly because policymakers here have lost faith that Mr. Tsipras will follow through with his end of the bargain and implement tough structural reforms in exchange for debt forgiveness.

 

Tsipras-Merkel-DPA
Does the coffee come with conditions, too? Mr. Tsipras and Ms. Merkel were among 19 euro zone leaders meeting in Brussels Tuesday. Source: DPA

 

 

While even the International Monetary Fund has admitted that Greece’s debts are not sustainable and that some of it will have to be forgiven, policymakers in Berlin insist this is not just about what is fair to Greece. It’s about the common, agreed rules that govern the European Union – and Germany is determined not to bend them for anyone.

“A debt haircut falls under the prohibition of bailouts,” Wolfgang Schäuble, Germany’s finance minister and the man portrayed as the biggest villain in the ongoing crisis by the Greek people, said flatly on Tuesday.

The prohibition of bail-outs is part of the E.U.’s Lisbon treaty, agreed in 2007, and states explicitly that no member of the euro zone can offload its debts on the other members. It is the reason that Greece was given a bailout loan rather than a grant in 2010, and again in 2012. E.U. law states that the money has to be paid back.

Germany is not the only one making this point. Debt forgiveness is a “red line” for the Slovakian government too, the country’s finance minister, Peter Kazimir, said Tuesday.

That doesn’t mean there isn’t any legal wiggle-room, if both sides are willing. The maturities of the €215 billion in loans that Greece has been given so far could be extended out even further, meaning Greece won’t have to pay the money back for more than a decade. That would give its economy time to recover.

But Berlin officials say the prospects of a deal along these lines is also slim following Sunday’s referendum, where the Greek people overwhelmingly rejected the tough conditions that the other 18 euro zone members have attached to any new bailout for the country – namely more budget cuts in the coming years and tough structural reforms of the economy.

For Chancellor Merkel, the prospects of getting a third bailout package for Greece through her own parliament are getting slimmer by the day. Politicians in her Christian Democratic party say they simply no longer trust Mr. Tsipras to follow through on any new aid plan that may be agreed. Even the left-leaning Social Democrats, the junior coalition partner to Ms. Merkel’s CDU, have been about as tough on Greece as Ms. Merkel herself.

 

Christopher Cermak is an editor with the Handelsblatt Global Edition in Berlin covering finance, economics and politics. Ruth Berschens is Handelsblatt’s Brussels bureau chief, and Jan Hildebrand leads political coverage out of Berlin. To contact the authors: cermak@handelsblatt.com, Berschens@handelsblatt.com and Hildebrand@handelsblatt.com

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