Greek debt crisis

No Quick Fix to Athens’ Woes

Greece May 3 bloomberg
Greece is holding on, waiting for another lifeline.
  • Why it matters

    Why it matters

    Even if Greece reaches a deal with its lenders, it won’t get access to the  bailout funds quickly, meaning it will be reliant on ECB support to avoid default.

  • Facts

    Facts

    • The ECB has limited Greece to issuing €15 billion in T-Bills. This ceiling has already been reached.
    • The ECB last week raised the limit on emergency liquidity assistance (ELA) to Greece to €76.9 billion.
    • Greece hopes to reach a deal by May 11, the day before it is due to repay €750 million to the IMF.
  • Audio

    Audio

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Greek Prime Minister Alexis Tsipras is clearly hoping that if he makes enough concessions to his country’s international creditors, he will receive the bailout money his country desperately needs.

But even if an agreement is reached this week, the money won’t be paid out quickly, according to several people familiar with the negotiations. That could leave Greece still precariously close to default.

Greece and its creditors, the International Monetary Fund, the European Union and the European Central Bank, have been holding intensive talks over the weekend trying to seek a way out of the impasse.

Since 2010 Greece has had to rely on the lenders to stay afloat, receiving two bailouts worth €240 billion, or $267 billion.

The election of Mr. Tsipras and his radical-left Syriza party in January has caused lenders to hold off paying the outstanding part of the current bailout. The country will also likely need another lifeline once the current program runs out in June.

With the negotiating teams meeting again on Monday, sources say that progress is being made. The Greek and international negotiators have spoken of a “better working atmosphere” after weeks of acrimony.

“The idea that money will be paid out by May 12 is completely absurd.”

Source Close to Negotiations

After infuriating many of his European counterparts with his antagonistic approach, the Greek finance minister, Yanis Varoufakis, has been sidelined with the appointment of the pragmatic Euclid Tsakalotos, deputy foreign minister, to head Greece’s negotiating team.

He needs to make up for lost time. This Wednesday an interest payment of €170 million ($190 million) is due to the IMF. Then the big crunch comes on May 12, when Greece has to pony up another €750 million to the IMF. The state debt agency also has to refinance treasury bills totaling €2.8 billion over the next two weeks.

Greece has been hoping that it can get a deal by May 11, the day the eurogroup, the euro-zone finance ministers, meet again.

Nevertheless, a source familiar with the talks told Handelsblatt “the idea that money will be paid out by May 12 is completely absurd.” The current bailout program has €7.2 billion left in its coffers. The election of leftist Syriza, which won after pledging to end austerity, saw the lenders lock the payments until reforms are implemented.

An agreement on a reform package would only be the first step and would likely be conditioned on Greece accepting so-called “prior actions,” sources close to the negotiations said.

These reforms would have to be drawn up as laws and then brought before the Greek parliament. Implementation would subsequently have to be monitored by the European Union and IMF. The responsible institutions would only decide whether to begin paying out money to Greece after this time-consuming process had been completed.

The IMF board would insist on this complete process before considering signing off on releasing the bailout payments. And the German government has emphasized that the euro-zone states can’t transfer funds unless the IMF does so at the same time.

The ECB could permit Greece to issue more short-term government bonds, so-called T-Bills.

Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, also have their work cut out for them, convincing the German parliament, or Bundestag, to go along with any agreement given the bitter war of words with Athens over the past months.

There is, however, a way for Greece to stay afloat.

Sources close to the eurogroup point to the European Central Bank, or ECB, as an institution that can help Greece more quickly.

The Frankfurt-based bank could permit Greece to issue more short-term government bonds, so-called T-Bills. Up until now, the ECB has set a limit of €15 billion. This ceiling has already been hit.

If it appeared that Athens was really approaching a deal with the lenders, then the ECB could raise that limit, providing Greece with a financial bridge to avoid default, while it awaited the bailout funds. ECB executive board member Benoît Coeuré supposedly mentioned this as an option during a meeting with senior finance officials from euro-zone countries last week.

But for ECB President Mario Draghi such a move would be risky. Investors are currently avoiding Greek debt securities so it would be the Greek banks that would ultimately purchase the T-Bills. These banks would be propped up in turn through emergency liquidity assistance (ELA) issued by Greece’s central bank.

Greeces Debts-01 (2)

Critics see here a thinly veiled attempt to use the ECB’s printing press to finance the Greek state. The ECB has continuously raised the limit for ELA credit, last week it was hiked again by another €1.4 billion to €76.9 billion. This has caused frustration in the ECB’s governing council and led to criticism above all from Germany’s central bank, the Bundesbank. That’s why during a recent meeting of euro-zone finance ministers Mr. Draghi threatened to sharpen the conditions for ELA if Greece doesn’t show any progress.

Raising the limit placed on T-Bills could, therefore, lead to further fighting in the ECB governing council. But the idea of raising the limit is at least being met with opposition in Frankfurt financial circles.

“If the progress is so good then the euro-zone finance ministers should grant Greece a bridging loan,” a source familiar with the debate told Handelsblatt. “That would be a cleaner solution than bringing in the central bank.”

Meanwhile, the government in Greece is desperately looking for new sources of income to fill the holes in the state finances.

The government is to present new tax legislation to the parliament this week, including higher income tax for those earning over €50,000 a year and a new tourism levy. Mr. Tsipras will hope that the legislation will be proof that Athens is serious about reform and spur on the talks with the creditors.

One element could be a tax of between 3 and 5 percent on overnight stays, or a flat payment of between €1 and €5 during the months April to September. Special taxes would also be imposed on spending in restaurants and bars on islands popular with tourists.

According to Greek media reports, the measures should bring in an extra €200 million a year.

However, SETE, the Association of Greek Tourism Enterprises, warns that the new taxes could put off potential visitors. The sector is already experiencing something of a downturn after two years of strong growth.

According to the association, bookings from Germany in March had fallen back by 26 percent compared to same time last year. Industry experts see this as a reaction to the anti-German rhetoric that the new government in Athens has deployed since coming to power.

 

Jan Hildebrand is the deputy head of the politics bureau in Berlin. Gerd Höhler in Athens and Siobhán Dowling, an editor with Handelsblatt Global Edition in Berlin, contributed to this article. To contact the author: hildebrand@handelsblatt.com

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