Tuesday, May 19, 2015

Juncker steps in with emergency Greek rescue as negotiations reach 'final stages'

By Mehreen Khan 18 May 2015

European Commission chief proposes relaxed budget targets and emergency cash release to finally break four-month negotiating impasse

The president of the European Commission has reportedly intervened in Greece's bail-out negotiations, proposing a reduction in Troika-imposed budget targets and a release of emergency cash to prevent Greece going bankrupt in the summer.

According a blueprint leaked to Greek media, Jean-Claude Juncker's "plan" to break Greece's deadlock includes a relaxation of Athens' primary budget surplus target to 0.75pc this year - half that previously sought by Greece's paymasters.

The proposals also include releasing €5bn to the government in June, and delaying a number of fiscal austerity measures until October. However, the blueprint maintained that Greece would have to retain a controversial property tax and push for flexible labour market reforms.

Despite refusing to confirm the plan, a spokesman for Mr Juncker said the EU chief was now "personally involved" in Greece's talks.

Mr Juncker and the Commission are reportedly taking a direct role in Greece's talks

Speaking in Athens on Monday, Greek prime minister Alexis Tsipras said negotiations with creditors were reaching their "final stages". He maintained the government would not agree to any plans to cut pensions and wages but said his government was willing to "accept compromises" to reach a deal should some form of bridging finance be agreed.

The Leftist premier, who wrote to Mr Juncker earlier this month to say Greece would default to its creditors, added his country's cash squeeze was being used as a "negotiating tactic". Mr Tsipras also repeated calls for some form of debt restructuring as part of any agreement with Greece's lenders.

Proposals from the Commission would represent an easing of the tough conditions demanded by Greece's creditors over the last 110 days.

Indicating a potential split among official creditors, the leaked memo highlighted objections to the plan from the International Monetary Fund, and voiced concerns the Fund was willing to withdraw its support for Greece.

The plan added that Athens' Leftist government needed to "increase the competitiveness of the Greek economy and address the enormous problem of unemployment".

Greek markets rallied on the news of a potential compromise, jumping nearly 4pc in afternoon trading.


A spokeswoman for the European Commission said she was "not aware" of the plan and creditors were still working towards a "comprehensive" rather than partial deal. A spokesman for the euro's economics chief also said he could not confirm the details of the plan.

Mr Juncker has been one of the most senior European officials who has called for a compromise over Greece's future in the euro.

Earlier this month, the former Luxembourg premier said a Grexit would leave Europe prey to "Anglo-Saxon" forces who would seek to dismantle the single currency "piece by piece" should Greece be allowed to leave.

The Commission's reported intervention came as Germany's central bank said Athens' ability to repay its international creditors has been "acutely threatened" by the brinkmanship of its Leftist government.

In its monthly report for May, the Deutsche Bundesbank said Greek banks were teetering on the edge of solvency, having been kept alive through emergency funds from the European Central Bank since February.

The hawkish central bank, a long-time critic of European largesse to debtor states, laid the blame for Greece's four-month negotiating impasse at the feet of Alexis Tsipras's radical Left government.

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"The abrupt change of course by the new Greek government interrupted and partially reversed the path of reform and stabilization, squandering the access to the capital markets which had been tentatively regained last year," wrote the Bundesbank.

"Since the [existing] aid programme cannot be renewed under the current circumstances, Greece's ability to pay is acutely threatened."


The Bundesbank added the onus was on Syriza to "do their part to avoid the insolvency of the state" or face "strong repercussions".

With the country's cash position deteriorating with every passing day, a spokesman for prime minister Alexis Tsipras said the government would pay its monthly salaries and pensions bill at the end of the month.

Gabriel Sakellaridis added Greece would not countenance a Cyprus style "bail-in" for its bank depositors.

In 2013, the Cypriot government was forced to impose a haircut on its largest depositors to rescue the country's beleaguered banking system - the first "bail-in" in the Eurozone's history.

Cyprus then received a rescue package from the Troika, but only after the ECB had threatened to withdraw emergency funding for its lenders. European officials, including the president of the bloc's finance ministers, have already raised the prospect of imposing Cypriot-style capital controls in Greece to stem the flow of money leaving the country.

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Greek banks have lost 15pc of their total deposits since December as people have rushed to pull their money out of the financial system.

Fears about the country's precarious solvency saw yields on two-year Greek government bonds, an indicator of default risk, rise to their highest point in over a month.


Mr Sakellaridis said his government is still aiming to reach an agreement on technical talks with lenders this week, ahead of a meeting of European leaders in Riga on Thursday.

However, Brussels officials seems to dash hopes of any resolution being reached in Latvia where Mr Tsipras will be attending alongside Angela Merkel. A European Commission spokesman said political negotiations would not "substitute" for the technical level talks over Greek reforms.

"Constructive contacts are ongoing and progress is being made, even though still at a slow pace,” said Margaritis Schinas of the European Commission.

Juncker steps in with emergency Greek rescue as negotiations reach 'final stages' - Telegraph