Deadlines Approach

Storm Clouds Over Athens

akropolis lightning dpa
Stormy weather ahead for Greece.
  • Why it matters

    Why it matters

    Greece needs to reach a deal with its European partners if it is to avoid exiting the euro zone. That is something that could have unforeseen consequences.

  • Facts

    Facts

    • The eurogroup of finance ministers are meeting on Wednesday.
    • The Greeks are to present a four-point plan, to allow them some breathing space.
    • The Germans are unlikely to accept any deal that does not include commitments to wide-reaching reforms.
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    Audio

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It was a sign of just how nervous Europe has become about the prospects of a Greek exit from the euro zone.

On Monday the British prime minister, David Cameron, said that officials at the finance ministry and the Bank of England had held a meeting that focused on preparations for a possible Grexit.

The worst-case scenario remains a real possibility. Over the past few weeks, the fronts appeared to harden between Greece’s new leftist government and their European partners.

It’s been a rollercoaster ride ever since Alexis Tsipras, the leader of radical left alliance Syriza, became Greek prime minister in late January, riding a campaign that vowed to end austerity and renegotiate the country’s bailout deal.

Mr. Tsipras and his new finance minister, Yanis Varoufakis, embarked on a whirlwind tour of European capitals last week, but failed to persuade key gatekeepers, particularly those in Germany, to provide them with debt relief.

Greece has a debt burden of more than 175 percent of its annual GDP, which the government argues is unsustainable.

After meeting with German finance minister, Wolfgang Schäuble, Mr. Varoufakis could not even agree with his counterpart’s assertion that they had “agreed to disagree.”

“After five years of bailout barbarity, our people cannot take any more.”

Alexis Tsipras, Greek prime minister

On Wednesday, the two men will meet again, when euro zone finance ministers meet in Brussels to discuss the situation in Greece.

It’s crunch time for Greece and the euro zone.

Ahead of the meeting, the two sides seemed determined to play hardball.

On Sunday, Mr. Tsipras gave his first major parliamentary speech since his January 25 election victory. The tone was far from conciliatory. “After five years of bailout barbarity, our people cannot take any more,” he said.

As well as promising to pursue Germany for reparations from World War II, Mr. Tsipras pledged not to ask for an extension of the bailout that runs out at the end of this month. That would mean turning down the remaining €7 billion ($7.9 billion) that Greece is still due as part of the bailout agreement.

Greece has received €240 billion in two bailouts since being forced to turn to its European partners in 2010 to avoid bankruptcy. The impact of austerity has been brutal, with a 25 percent decline in GDP and rampant unemployment. The bailout program’s deep unpopularity propelled Syriza and the small Independent Greeks party into power last month.

The new government almost immediately vowed that it would no longer deal with the troika representing its international lenders, the European Union, the European Central Bank and the International Monetary Fund.

However, without some kind of outside assistance, Athens is not likely to survive the month without being pushed into bankruptcy.

On February 12, the country is due to make a €780 million payment to the IMF and the following day, Athens will need to refinance short-term bonds worth €1.4 billion. In March the IMF is due another payment of €1.6 billion, and then bonds worth another €4.6 billion must be refinanced. By the end of March, the country has to pay another €1.7 billion in interest.

Mr. Tsipras has called for a “bridging program” — in the form of a short-term bridge loan — to give his country some breathing space. But the rest of the euro zone is unclear exactly what he means by this, and doesn’t seem interested making any concessions.

Varoufakis DPA
Finance Minister Yanis Varoufakis addresses parliament. Source: DPA

 

Mr. Varoufakis may provide clarity when he presents Greece’s plan to his European partners and E.U. officials on Wednesday.

According to sources close to the Greek government, the plan consists of four points: Athens wants to reduce the primary surplus demanded by the bailout deal from 4.5 percent of GDP to 1.5 percent.

The country would instead use the extra funding to alleviate social problems.

The third plank of the plan would be an agreement with Europeans on negotiating some form of debt relief during the summer.

The fourth point would allow Athens to refinance with more short-term bonds that mature in three or six months. The current troika deal imposes a limit of €15 billion on short-term borrowing. The Greeks want this increased by another €8 billion.

Such a deal would give Greeks time to reach a comprehensive agreement with the euro zone later this year.

According to media reports, Mr. Varoufakis is willing to pledge to implement around 70 percent of the existing bailout program and may even tap the remaining €7 billion in the bailout fund after all.

According to the English website of Kathimerini, a daily newspaper in Athens, the remaining 30 percent of the bailout agreement would be scrapped and replaced with 10 new reforms that Greek officials would agree with the Organization for Economic Cooperation and Development.  The OECD secretary-general, Angel Gurría, is visiting Athens on Tuesday to discuss the reforms.

In a speech in parliament on Monday, Mr. Varoufakis said the government did not want “to tear up the memorandum nor to enforce it faithfully.”

In Brussels, the expectation is that Greece will require another bailout program worth around €20 billion.

The plan could face an uphill battle winning support among Greece’s lenders.

In Brussels, the expectation is that Greece will require another bailout of around €20 billion. That is far more than had previously been planned. Last year, E.U. officials had expected that €10 billion would keep Greece afloat.

That has changed, according to diplomatic sources. The election campaign and the change of government in Greece have increased the gap in the public finances, they say.

In particular, tax revenues have plummeted, as many citizens simply stopped paying taxes in anticipation of a Syriza victory.

Mr. Tsipras is still trying to remain upbeat.

“I am sure, that we can reach an agreement with our partners on the basis of our plan,” he said on Monday during a visit to Vienna.

However, there are likely to be problems with the Athens plan.

For a start, it is unlikely that the Greek government will be able to sell short-term bonds to investors for €8 billion.

Last week’s auction saw the lowest demand for Greek bonds since 2006.

The main buyers were Greek banks, which are dependent on the European Central Bank’s emergency lending.

Up to now, the Europeans have shown little patience or willingness to provide the new Greek government with the time it is asking for. Instead the heat is being turned up on Athens.

Using the European Stability Mechanism, Europe’s bailout fund, to pay for a bridging program was not on the table, one high-ranking E.U. diplomat told Handelsblatt.

Instead, Greece was to be told that it had to stick to the terms of its current bailout program and request an extension until July.

Germany is leading the charge against Mr. Tsipras’ demands.

Without a bailout program things would become difficult for Greece, Mr. Schäuble said. “But if they don’t want any help from me, that is also fine,” the finance minister said.

“I think what counts is what Greece will put on the table,” Chancellor Angela Merkel said at a news conference in Washington on Monday.

The feeling in Berlin is that the idea of a “bridging program” masks the reality that the Greeks want money without having to stick to reform requirements, according to government sources. And that is not going to happen.

 

Ruth Berschens is Handelsblatt’s Brussels bureau chief, Jan Hildebrand leads financial policy coverage from Berlin, Gerd Höhler is Handelsblatt’s Athens correspondent and Hans-Peter Siebenhaar is the paper’s Vienna correspondent. Siobhán Dowling, an editor at Handelsblatt Global Edition, also contributed to this article. To contact the authors: berschens@handelsblatt.com, hildebrand@handelsblatt.com, hoehler@handelsblatt.com, siebenhaar@handelsblatt.com.  

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