Euro Talks

Greece Stonewalling International Lenders

Juncker Tsipras Reuters
Not so friendly any more. Alexis Tsipras (l) and Jean-Claude Juncker (r).
  • Why it matters

    Why it matters

    Greece needs to persuade lenders to unlock its remaining funding soon to meet its looming debt payments by June 30.

  • Facts

    Facts

    • Greece presented lenders with its latest proposals on Monday night.
    • The proposals include revised primary surplus targets up to 2017.
    • The country has bundled the €1.6 billion repayments due to the IMF this month to be paid on June 30.
  • Audio

    Audio

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Greece appears to be losing its last remaining political credibility with Brussels and its dwindling circle of supporters, as it continues its brinkmanship with international creditors.

With each side waiting to see if the other will budge first, there has been little sign of progress even as cash-strapped Greece runs out of time as well as money.

Late Monday night, the government in Athens presented lenders  – the International Monetary Fund, the European Union and European Central Bank  – with yet another list of proposals to try to unlock its bailout funds. But the offer only provoked quick, massive irritation.

While officials are still sifting through the four-page document from Athens, several E.U. diplomats told Handelsblatt that even at first glance some of the figures and demands did not seem acceptable.

The annoyance is all the greater because Athens seems to be reneging on commitments it had already made to make austerity cuts to its budget up to 2017.

In the latest proposal, the Greek government is only offering a primary surplus (without debt servicing) of 0.75 percent this year, 1.75 percent in 2016 and 2.5 percent in 2017, said one E.U. diplomat. That was less than previously agreed.

After meeting with E.U. Commission President Jean-Claude Juncker last week, Mr. Tsipras had agreed to primary surpluses of 1 percent this year, 2 percent in 2016 and 3 percent in 2017.

The fact that this agreement seems to have been reneged upon has caused fury within the European Commission. “Greece is losing the last friend that it had,” a source in Brussels told Handelsblatt.

Greece has been trying to reach a deal with its creditors to unlock €7.2 billion in its remaining bailout fund.

The country is facing a €1.6 billion debt repayment to the IMF by the end of the month, when its current bailout program runs out. If it can’t reach a deal or its current bailout program is not extended, then it will likely default and be forced out of the euro zone.

The negotiations have dragged on for months, since the election of the left-wing Syriza party in January, which pledged to end the punishing austerity imposed on Greece as a condition for its €240 billion in loans since 2010.

“What Greece is now proposing is not serious.”

Michael Fuchs, CDU deputy parliamentary leader

According to the Greek finance minister, Yanis Varoufakis, Athens has crossed many of its red lines in seeking compromises with its lenders. However, for the lenders, the government is not going far enough, particularly on the issues of pensions, public sector pay cuts and labor reforms.

The issue of the primary surplus has become a sticking point, with Greece arguing that it cannot maintain the surplus the lenders are demanding and also manage to grow its economy. And it maintains that its current level of debt is simply unsustainable.

The youthful Greek prime minister, Alexis Tsipras, has to win over not only the lenders but also members of his Syriza party, which overwhelmingly opposes the austerity conditions that the lenders are demanding.

It seems Mr. Tsipras has alienated one of those who had been most symphathetic to this struggle.

Mr. Juncker is reported to have declined to meet with Mr. Tsipras today in Brusssels, where he will be attending the E.U./Latin America summit.

The Greek prime minister is hoping, however, to hold talks with Germany’s chancellor, Angela Merkel, and French President Francois Hollande on the fringes of the summit, although French government sources told Reuters that no meeting is scheduled.

Last week, tensions increased between the commission president and the Greek leader after Mr. Tsipras failed to deliver on a pledge to send his proposals to Brussels the day after the two men met on Wednesday.

By Sunday, a peeved Mr. Juncker told journalists at the G7 summit that he had yet to receive the list and added that he was disappointed at a speech Mr. Tsipras gave to the Greek parliament, a speech he believed misrepresented the stance of the creditors.

“I do not have a personal problem with Alexis Tsipras,” Mr. Juncker said. “He was my friend. He is my friend. But frankly, in order to maintain [the friendship], he has to observe some minimum rules.”

Alexis Tsipras has to win over not only the lenders but also members of his Syriza party.

Mr. Juncker had been perceived as favoring a less harsh approach to Athens. However, his patience seems to have been tested by the behavior of the Greek political leadership.

The disappointing new proposals will probably do little to ease these tensions.

In Berlin, the reaction was also far from positive. “What Greece is now proposing is not serious,” Michael Fuchs, a senior member of Ms. Merkel’s Christian Democrats, told Bloomberg TV on Wednesday.

Nevertheless, the Greek government has sought to present its new proposals in a positive light, saying it has made concessions on the issues of value added tax, or VAT, and early retirement age. Yet even these proposals, sources in Brussels say, are still too vaguely formulated to form the basis of an agreement.

When it comes to debt restructuring, however, the Greeks are far more concrete. According to E.U. diplomats, the government in Athens is suggesting that the European Stability Mechanism, the fund set up to bailout out struggling member states, should buy up Greek government bonds from the European Central Bank and the national central banks.  The nominal value of these bonds is about €27 billion.

Greece is also hoping that the ECB will lift the ceiling for treasury bills from €15 billion to €18.4 billion.

Meanwhile, against the background of this continuing game of chicken, there is little sign of the market volatility that surrounded the last Greek debt crisis in 2012.

Many investors have long expected that either some sort of deal will be reached at the last minute or that the Greek bailout program will be extended into 2016.

And even if no deal is reached, there is little fear that a Greek default and exit from the euro zone would cause widespread contagion.

 

Ruth Berschens is Handelsblatt’s Brussels bureau chief, Gerd Höhler is the Athens correspondent, Siobhán Dowling is an editor with Handelsblatt Global Edition. To contact the author: berschens@handelsblatt.com, hoehler@handelsblatt.com, dowling@handelsblatt.com

 

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