May 21, 2015


Creditors consider programme extension

Eurozone governments are now looking into the possibility of extending the current bailout programme over the summer, according the Sueddeutsche Zeitung. The newspaper quotes a high-ranking official saying that this would be the best option to prevent Grexit by accident. This time could also be used to negotiate a third package in parallel [Note: The Greeks always insist that there will be no third package, but debt relief]. An extension might also be necessary if Alexis Tsipras was to decide to hold a referendum on the agreement in autumn. It would be out of respect for a democratic decision, not to cut off the programme, the paper quotes one EU official saying. 

Whether or not an extension can be granted depends on today's talks between Angela Merkel, François Hollande and Alexis Tsipras on the sidelines of the EU summit in Riga. Greece tried to get debt-relief talks on the agenda of the two day meeting, but the European Council declined, arguing that the summit is about issues related to Eastern Europe, Kathimerini reports. Tsipras is expected to tell his counterparts that his government has made as many concessions as it can and that the lenders now have to find a way to move closer to Greece. The German government has an interest in getting the issue off the table so that it does not interfere with its G7 summit in Schloss Elmau a week later, to avoid a repeat of the G7 meeting in 2011 when the Greek crisis completely changed the agenda of the whole summit.  

There is also troubling news from Greece, showing that accidents can happen. The Communist faction of Syriza started a signature collection to ask the government to “stop paying the lenders-blackmailers” and to “implement the true popular mandate” on which Syriza was elected. Greek Analyst translated the complete text which has been signed by 150 Syriza members so far (which is not a lot) and will be submitted to the Central Committee meeting over the weekend. Macropolis argues that all the noise does not really mean that there will be an internal revolt. The only wing that would potentially have the power to bring down the government is the left faction behind Energy Minister Panayiotis Lafazanis with about 25 MPs. Lafazanis has not criticised the government in public, unlike Yiannis Milios and others. But if he were to decide for rupture, Tsipras would have to hold a referendum or turn to an opposition party for parliamentary support.

Wolfgang Schaeuble set off a news flood with his comment on Greek default that in substance is nothing new, but the way it was phrased and the timing turned it into a bombshell in the press circuit. When asked whether he would repeat an assurance he gave in late 2012 that Greece wouldn't default, he told the Wall Street Journal and Les Echos that “I would have to think very hard before repeating this in the current situation.” 

The Greek side has been more outspoken for quite a while, which many suspect was also part of their negotiating strategy. The latest was the parliamentary spokesman for Syriza Nikos Filis, who Reuters reports told ANT1 television that Greece will not be able to make a IMF payment due on June 5 unless foreign lenders provide more funds. Quotes from Yanis Varoufakis often rattle, whether in context or out of context. His assurance on Channel 4 that he will prioritise paying public sector workers and pensions - not the IMF, legitimate though it may be, is sure to increase the sense of heightened uncertainty.

The ECB had a very long discussion on Greece. In the end they decided against raising the collateral haircuts and for increasing the ELA ceiling, but by only €200m which is the smallest amount since February, according to Bloomberg. However, the lengthy discussions suggest that resistance to continuing raising the ceilings is running high. Before the meeting some members of the Governing Council took the view that the existing level of ELA was sufficient to meet Greek banks’ needs, as deposit outflows stabilized in the past week. The ECB discussion on collateral was long and exhausting, one of the people said. Policymakers review ELA weekly and can restrict it with a two-thirds majority in a vote.

As for the intensified effort on the Greek side, the Greek negotiation team has now proposed a levy on certain bank transactions to raise revenues to meet fiscal targets, according to Reuters sources. All we know is that it is not a banking transaction levy and that the talks are at a "preliminary level." The Greek government is also to submit its new VAT proposal in the coming days. And Tsipras is expected to present a debt restructuring plan at the Riga summit (though not officially, as this is off the agenda), Ta Nea newspaper reported yesterday.

We also note that George Osborne is coming to Berlin, and that Wolfgang Schaeuble will talk about how to accommodate the UK's wish for more independence with the German wish list for Treaty changes, in other words stronger core and looser periphery.

Our other stories

Today we also have stories on a lack of ambition by the Basel committee; our take on Varoufakis’ latest; what other surplus countries do and Germany do not; what has been happening since the bond rout; how Portugal is trying to get the IMF out; and why the ECB’s new speech rules do not go far enough.

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