Greek Negotiations

Whistling in the Dark

Greece Riga AP
Yanis against the world.
  • Why it matters

    Why it matters

    Greece’s lenders are losing patience and openly considering how to deal with a default.

  • Facts

    Facts

    • Greece has to pay the IMF €770 million, or $834 million, on May 12.
    • Greek finance minister, Yanis Varoufakis, was harshly criticized by his counterparts at a eurogroup meeting last Friday.
    • The current bailout program runs out on June 30 and the ECB cannot continue providing ELA to Greek banks if there is no new deal.
  • Audio

    Audio

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In the midst of the pale and serious men in suits and ties, one face stood out: Yanis Varoufakis, Greek finance minister and all-round euro rebel, in his open necked shirt and shaved head, beamed as if he didn’t have a care in the world, following the meeting of euro-zone finance ministers in the Latvian capital, Riga, last Friday.

That couldn’t be further from the truth. Mr. Varoufakis had come to the gathering, known as the eurogroup, to plead once again for Greece to be allowed access its outstanding bailout funds. Instead he was reprimanded by his counterparts for his attitude and his country’s lack of progress on implementing reforms.

Greece and the eurogroup have been dancing a tango with each other for months, advancing and retreating on the terms of a deal that remains elusive. One thing is sure: Greece cannot survive past the end of June, when its bailout regime ends.

After that, the European Central Bank will no longer be able to extend its emergency lending to Greek banks, which is keeping the country’s financial sector afloat. The country needs a deal by then.

In Riga, it was not clear how this was going to happen. Ministers were visibly irritated with Mr. Varoufakis, an academic-turned-politician, and with his negotiating style, which is reported to be long on lecturing and short on substance.

In general, the view has taken hold among Greece’s creditors – the European Union, the European Central Bank and the International Monetary Fund – that Athens is simply not serious about implementing reforms they deem necessary.

As a result, they are refusing to hand over the remaining €7.2 billion, or $7.8 billion, in Greece’s current bailout program until Mr. Varoufakis finally convinces them that he is serious about those reforms.

The sense of frustration is growing, and with it the risk that Greece could end up defaulting and leaving the 19-country euro currency area.

Mr. Varoufakis felt the wrath of his euro-zone peers last Friday.

“All the ministers told him: This can’t go on,” the Spanish finance minister, Luis de Guindos, said the day after the Riga meeting. “The feeling among the 18 was exactly the same. There was no kind of divergence.”

Mr. Varoufakis does not seem to have been cowed by his colleagues’ opprobrium. On Sunday, he tweeted: “FDR, 1936: ‘They are unanimous in their hate for me; and I welcome their hatred.’ A quotation close to my heart (& reality) these days,” referring to late U.S. president, Franklin D. Roosevelt.

The combative finance minister and more conciliatory Greek prime minister, Alexis Tsipras, sought allies in Europe when they first came to power, hoping that other countries would back their rejection of austerity.

While some, such as Italy and France, gave the new Greek leaders a warm reception, as it has come down to the wire, the rest of the euro zone has banded together in insisting that Greece implement painful reforms to its national budget, which would expose the ruling Syriza party to the wrath of Greek voters.

While the Greek government has made vague noises about how it is prepared to that, their actual reform proposals have fallen short of lender expectations. The impression is growing that the Athens administration is simply playing for time.

“Our spring forecast for Greece will be more pessimistic.”

Valdis Dombrovskis, European Commissioner for the euro zone

Increasingly, the rest of the euro zone has come to believe that Greece is involved in a dangerous game of chicken: Holding out on real reforms, in the hope that its lenders will end up providing the money any way to avoid the dreaded Grexit.

“They want money from us without doing anything for it,” a high-ranking euro-zone representative told Handelsblatt.

The situation is urgent, with the Greeks rapidly running out of funds. Last week, Mr. Tsipras asked the country’s local and city governments to hand over cash reserves to the central administration, so that public salaries and pensions can be paid.

Mr. Tsipras is balking at conceding to the creditors’ demands. He and his leftist party, Syriza, came to power in January vowing to end the punishing austerity the previous governments had committed to in exchange for the €240 billion in bailouts the country has received since 2010.

 

Greece Greek has time to repay debt repayment schedule maturities loans-01

 

His radical-left Syriza party is actually an alliance, made up of different groups, some pragmatic, others hardline. He faces the almost impossible task of reaching a deal with the international lenders, while keeping these factions happy.

Meanwhile, the fact that Greece keeps saying it is about to go bust, and then somehow finds the necessary funds, could fatally see lenders not believing Athens if it finally comes to crunch time, leading to a Grexit by accident.

Athens has to pay the International Monetary Fund almost €1 billion in May alone. At the weekend, Yannis Dragasakis, Greece’s deputy prime minister told a newspaper that this meant a deal was required by mid-May at the latest.

Last week, the ECB extended the ELA for Greece by yet another €1.5 billion, despite speculation it might turn off the tap. Sources told Handelsblatt that the Frankfurt-based bank did not want to bear the responsibility for triggering a Grexit.

For the ECB and the other lenders, however, patience is running out, and thoughts are now turning to how to deal with the eventuality that Greece does become insolvent.

At the Riga meeting on Friday, the Slovenian finance minister, Dušan Mramor, and other ministers openly broke the taboo, and called for a Plan B, participants of the meeting told Handelsblatt.

Previously the idea of preparing for a Greek default might have been mentioned on the fringes of a eurogroup meeting but not openly at the meeting itself.

Wolfgang Schäuble, German finance minister and one of the harshest critics of the new Greek government, has dismissed such talk. Pointing to the fall of the Berlin Wall, he said: “If a responsible minister  – and I was one – had said beforehand, we have a Plan B for reunification, then the entire world would have said: ‘The Germans are completely crazy.’”

In other words, there is a Plan B but no responsible politician will say so openly.

What is clear is that a Greek default might not necessarily mean that the country automatically leaves the euro zone. “We would then be in a gray zone,” a high-ranking E.U. diplomat told Handelsblatt. “There is a wide spectrum of options between default and Grexit.”

Greece would probably have to print some kind of national currency, to be able to pay pensions and salaries. On the other hand, the euro would probably remain as a hard currency – alongside a national currency that would be hit by extreme inflation.

The risk having to implement Plan B is growing as the Greek economy starts to slump again.

Last winter, the European Commission forecasted growth of 2.5 percent for 2015. “Our spring forecast for Greece will be more pessimistic,” European Commissioner for the euro zone, Valdis Dombrovskis, told Handelsblatt.

The efforts to find a solution continue. After meeting with Angela Merkel last week on the fringes of a European Union summit, Mr. Tsipras called the German chancellor again over the weekend, Greek officials told reporters.

Meanwhile, the so-called Brussels group, the technocrats tasked with reaching a deal with Greece, will hold a teleconference with officials in Athens on Monday, and then meet in person on Wednesday.

 

Ruth Berschens is Handelsblatt’s bureau chief in Brussels. Siobhán Dowling is an editor with Handelsblatt Global Edition in Berlin. To contact the authors: berschens@handelsblatt.com, dowling@handelsblatt.com.

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