Monday, July 13, 2015

Greece crisis: Cash-strapped Greece told to restore trust before new financial rescue talks begin

 

Eurozone leaders have told near-bankrupt Greece at an emergency summit that it must enact key reforms this week to restore trust before they will open talks on any new financial rescue to keep it in the European currency area.

European finance chiefs locked in Greece negotiations Photo: Managing director of the IMF Christine Lagarde (C) greets the president of the Euro group Jeroen Dijsselbloem (R) prior to a meeting of finance ministers. (AFP: John MacDougall)

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Greek prime minister Alexis Tsipras will be required to push legislation through parliament to convince his 18 partners in the Eurozone to release immediate funds to avert a state bankruptcy and start negotiations on a third bailout program estimated at up to 86 billion euros ($128 billion).

Six sweeping measures including tax and pension reforms will have to be enacted by Wednesday night (local time) and the entire package endorsed by parliament before talks can start, a draft decision sent by Eurogroup finance ministers to the leaders showed.

The document also included a German proposal to make Greece take a "time-out" from the Eurozone if it failed to meet the conditions for a loan.

But not all ministers endorsed the idea, which was reserved in brackets in the text.

A senior EU source said such a temporary exit from the euro was illegal and would not survive in the summit statement.

There is no such thing as temporary Grexit, there is only a Grexit or no Grexit.

French President Francois Hollande

Mr Tsipras said on arrival in Brussels he wanted "another honest compromise" to keep Europe united.

"We can reach an agreement tonight if all parties want it," he said.

But German chancellor Angela Merkel, whose country is the biggest contributor to Eurozone bailouts, said the conditions were not yet right to start negotiations, sounding cautious in deference to mounting opposition at home to more aid for Greece.

"The most important currency has been lost and that is trust," she said. "That means that we will have tough discussions and there will be no agreement at any price."

If Greece meets the conditions, the German parliament would meet on Thursday to mandate Ms Merkel and German finance minister Wolfgang Schaeuble to open the talks on a new loan.

Then Eurogroup finance ministers would meet again on Friday or at the weekend to formally launch the negotiations.

A Greek government official, in a first reaction to the draft, said: "How can they demand all these measures at the last minute without securing a lifeline to see us through till next week?"

Angry exchanges during meeting of finance ministers

The meeting of finance ministers was suspended after angry exchanges during nine hours of acrimonious debate without a firm recommendation on Greece's application for a three-year loan on the basis of reform proposals submitted by Mr Tsipras.

Eurogroup chairman Jeroen Dijsselbloem said while ministers had made good progress, a couple of big issues were left for the leaders to resolve.

"The Eurogroup ... came to the conclusion that there is not yet the basis to start the negotiations on a new program," the document sent to national leaders said.

"Only subsequent to legal implementation of the above mentioned measures can negotiations on the memorandum of understanding commence, subject to national procedures having been completed," it said, in a reference to authorisation by national parliaments in countries such as Germany.

The draft said Greece needed 7 billion euros by July 20, when it must make a crucial bond redemption to the European Central Bank, and a total of 12 billion euros by mid-August when another ECB payment falls due.

It did not say how those needs would be met, and EU officials said finance ministers had been unable to agree on emergency finance.

'No such thing' as a temporary Grexit

Several hard-line countries voiced support for the German proposal that Greece take a five-year "time-out" from the euro unless it accepted and implemented swiftly much tougher conditions, notably by locking state assets to be privatised in an independent trust to pay down debt.

But French president Francois Hollande, Greece's strongest ally in the euro zone, dismissed the notion, saying it would start a dangerous unravelling of EU integration.

"There is no such thing as temporary Grexit, there is only a Grexit or no Grexit. There is Greece in the Eurozone or Greece not in the Eurozone," he said.

"But in that case it's Europe that retreats and no longer progresses and I don't want that."

European Council president Donald Tusk cancelled a planned summit of all 28 EU leaders that would have been needed in case of a Greek exit from the single currency, and said Eurozone leaders would keep talking "until we conclude talks on Greece".

The finance ministers agreed in principle to seek ways to make Greece's debt burden manageable by extending loan maturities and other steps stopping short of a "haircut" or write-down, provided Athens first implements reforms.

They also insisted that the International Monetary Fund must remain fully involved in any third bailout for Athens.

At one stage in the debate on Greece's debt sustainability, Germany's hard-line Mr Schaeuble snapped at ECB president Mario Draghi: "I'm not stupid," a person familiar with the exchange said.

Mr Schaeuble also clashed with the head of the Eurozone bailout fund, Klaus Regling, on whether the EU treaty conditions for an emergency loan were fulfilled, another source said.

The rules say there must be "a risk to the financial stability of the euro area as a whole or of its member states".

Economists said the idea of a temporary exit would mean in practice ejecting Athens from the European monetary union.

Paul De Grauwe, a Belgian economist at the London School of Economics, compared it to a couple having a trial separation.

"Temporary Grexit is like temporary divorce. Most if not all end up being permanent," he said in a Twitter message.

Paul De Grauwe @pdegrauwe

Temporary Grexit is like temporary divorce. Most if not all end up being permanent.

8:19 PM - 12 Jul 2015

The United States has added its voice to calls for a deal this weekend, concerned at the geopolitical consequences if Greece were to be cut loose and become a failed state in the fragile southern Balkans, adjoining the Middle East.

"No-one wants to see a North Korea in south-eastern Europe," a European Commission official said.

Reuters

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