According to Reuters, the Troika told Eurozone governments that proposals from Greece for a bailout loan are a basis for negotiation, an EU official said on Saturday. “The three institutions have made a first joint assessment of the Greek reform proposals submitted Thursday night. Under certain conditions, they jointly see the proposals as a basis for negotiating an ESM program. This assessment was sent to the Eurogroup president last night,” the official said.
That recommendation is an important step before the Eurogroup of euro zone finance ministers meets at 1300 GMT in Brussels to decide on Athens’ request for help from their European Stability Mechanism bailout fund. Ministers’ advisers are due to meet in the Euro Working Group at 0800 GMT.
Of course, nobody doubted that the proposal which falls back to what the Troika itself submitted two weeks ago, would be the “basis” for talks. The question is what the final draft will look like.
And it is here that the Troika will surely make Greek life a living hell as it returns with demands that force the government to shortly vote on a “deal” that has far greater austerity embedded in it.
First, Germany’s Frankfurter Allgemeine Sonntagszeitung reported that Greece’s international creditors view the country’s reform proposals as insufficient to meet agreed budget surplus targets, citing assessment paper provided to euro-area finance ministers by the Troika. FAS adds that the “new plan insufficient in light of “significant deterioration of macro economic and financial conditions” in Greece. As a reminder, Greece hopes to achieve a 2015 surplus target of 1% in 2015 rising to 3.5% by 2018. This is not going to happen and everyone in Europe knows this.
In fact, Greece will be lucky to be able to ever reopen its banks again.
Europe’s hard-line stance was confirmed on several more occasions. First, the Deputy Finance Minister of the Netherlands Eric Wiebes said that “the Greeks have made a step but at the same time we notice that the institutions are critical about the proposal” adding that “we have serious concerns on the power of the Greek government to implement but also the commitment because we’re discussing a proposal that looks very much like a proposal that less than a week ago was largely rejected.”
The logic continued: “the Greek govt said then it was in Greek interest to reject it. There are large concerns about that and that’s what we will discuss.”
This position was echoed by Estonian Finance Minister Sven Sester who said that “Greece faces the hardest work at home because there is still lack of trust that even agreed reforms can be fulfilled eventually.”
Considering that as part of its Third bailout proposal, Greece promised the implement reforms pledged in 2010, one can see why Europe is skeptical this isn’t just another ploy by the Greeks to have the banks reopened so the depositors can withdraw the remaining money and then pull the plug on Europe once more.
And then, moments ago Irish Finance Minister Michael Noonan said the Greece’s bailout request probably needs extra measures and proof that it can be implemented, adding
most importantly that “the Greek paper was silent on banking” which as we noted yesterday will require another €10-20 billion bailout.
But the most interesting narrative is developing within Germany itself where Bild repeated what we said about the view split between Merkel and Schauble, reporting that “a power struggle is brewing between German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble” over how to proceed with Greece. Bild said that it was Merkel who out of consideration for EU partners, especially France, backs new talks with Greece, while Schaeuble regards Greek reform proposals as “inadequate” and opposes further negotiations. Then again this seems to be an exact rehash of what we said yesterday in our commentary to the Varoufakis op-ed so take it with a grain of salt.
But one thing that is certain: according to Dow Jones, as part of its Bailout Number 3, Greece will need €74 billion in fresh funding (i.e. debt), citing the Troika, of which €16 billion would come from the IMF.
Which means that Greek debt, already at 175% of GDP…
… is about to rise above 200%. Which brings to mind a statement by Latvia’s outgoing president which we posted last week:
“this [Greek] debt is so big that everyone understands that it won’t be repaid. Loans to Greece have just bought time so that those in power don’t have to take decisions. This is like a game: who can hold out longer by not showing that this money has been lost? This burden has become bigger and there obviously is no possibility to repay. The debt writedown of Greek debt will come after bankruptcy of state.”
In other words, all that may happen this weekend, assuming Tsipras can again can pass the revised draft of its debt proposal which will have far more austerity and pension cutting measures in it, is push the date of the Greek default back by a few months, while Greek debt goes from merely unsustainable to utterly ridiculous.
