A mini crisis-summit on Greece held late last night between PM Tsipras and a handful of key euro area leaders and policymakers thankfully appears to have de-escalated somewhat a process that had begun to spiral out of control this week. Merkel, Juncker, Draghi and others around the table managed to extract a commitment from Tsipras to stick to the bailout roadmap agreed at the Eurogroup of 20 February. As such, the latest agreement brought no change of facts or conditions, but merely reaffirmed the need for Greece to cooperate fully with the “Brussels Group” of EC, ECB and IMF, not least in the Athens-based fact-finding missions that have reportedly been impeded by the Greek administration.
The official statement released after the meeting spoke of all sides “speeding up the work” and called on the Greek government to “present a full list of specific reforms in the next days”. An initial list was, of course, already presented more than three weeks ago and – despite, or maybe because of its breadth – was deemed to be barely sufficient to afford Greece a four-month extension of the bailout. With legislative reform progress since then having been limited to emergency revenue-raising measures and snap expenditure increases, Greece not only needs to draft a far more detailed reform plan for approval by the creditor institutions; some degree of implementation will also still be expected, by end-April, before the disbursement of €3.7bn by euro area member states can take place.
In the six weeks that remain until then, potential stumbling blocks litter the financial, political and administrative route ahead, as cash shortages, deposit flight, declining popular support of the government and a dysfunctional bureaucracy all need to be circumnavigated to unlock further EU funds. At the same time, the risk of the ECB halting its policy of successive ELA increases looms large given apparent concerns of the single euro area supervisor (SSM) about the (increasingly ELA-financed) ‘deadly embrace’ between Greece’s banks and the government. But in the very short term, the more conciliatory mood between Greece and its creditors might be hoped to calm Greek depositors, whose withdrawals on Wednesday reached levels not seen in a month. And so despite Eurogroup President Dijsselbloem’s suggestion earlier this week that capital controls might be considered, on balance we now do not expect this to happen as soon as this weekend.
