Category: Troika

Grexit may come soon if no Greek deal

16/6/2015

Alexis Tsipras, Greek Prime Minister

Weekend talks with creditors did not lead to any progress in negotiations between Greece and its creditors. The creditors insisted that Greece had not presented reforms sufficient to meet the conditions for a release of the final tranche of the existing bailout loan which ends the end of this month. However if there is not a deal before this Thursday when the Eurozone finance ministers hold a meeting there may not be time to pass any deal through country legislatures.

Greece decided to make all four payments due this month to the IMF at the end of the month. It must find 1.54 billion euros ($1.7 billion) to make this payment. Unless the remaining 7.2 billion euros of the loan payment are released by then, Greece could very well default. It is quite possible that Greece will not be able to obtain any more concessions from its creditors. If Greece continues to resist pension and labor market changes demanded by the Troika of the European Commission, European Central Bank and International Monetary Fund, there may be no deal. Eventually Greece might be forced into a Grexit or exit from the eurozone and the reintroduction of the drachma as currency.

Some leftists within the ruling Syriza party are already suggesting that the government should be preparing for this eventuality.

The EU creditors are also preparing for this as a possibility. A German newspaper claims that Eurozone leaders are drawing up plans for capital controls on Greece if there is no deal by this next weekend. Greece will be handed an ultimatum deal this week the paper claims.

Prime Minister Alexis Tsipras condemned the unrealistic demands of creditors especially demands for pension cuts when pensions have already been significantly reduced. At the same time he said that he was open to resuming talks at any time. The Troika has been insisting for days that time is running out and that Greece needs to decide if it is going to accept the demands of creditors. The time for negotiation is over some have said. Yet Greek negotiators appear to think that they can gain more concessions from the Troika or institutions since the IMF and the European Central Bank have a lot to lose if Greece defaults.

The increasing uncertainty over any solution to the Greek crisis was reflected even in US markets with the Dow Jones index continuing to fall but the declines were even steeper in European markets.

Tuesday - Markets suffer as Greece teeters on the edge of Grexit - live

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Chancellor Merkel says greek deal still possible

10/6/2015

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Alexis Tsipras, Greek Prime Minister

Angela Merkel, the German Chancellor, said that a solution was still possible to solve the Greek crisis. She said this as she arrived at a summit meeting Wednesday of EU and Latin American leaders which Greek Prime Minister Tsipras also will attend.

Merkel also said she would be available to talk with Tsipras at the Brussels meeting if she wished.

Merkel said:"The goal is to keep Greece in the Eurozone. I always approach these things with the attitude, if there is a will there is a way. But the work has to happen with the three institutions (Greece's bailout monitors: the European Commission, European Central Bank and International Monetary Fund). And every day counts....On the fringes there will be maybe a meeting with the Greek prime minister, as well with the French president. We did not yet fix a time, but if the Greek prime minister wants to talk with us, we will of course do that."

The Greek government has been negotiating for five months now on a deal with its creditors, the EU Commission, European Central Bank (ECB) and International Monetary Fund| (IMF). These used to be called the Troika but are no referred to simply as the "institutions". While Greece has given way on many issues with respect to its anti-austerity red lines, it still has refused to move on cuts to pensions and on labour market issues. On some tax issues and on privatization is has already yielded.

In order to make earlier loan payments to the IMF, the Greek government had to borrow from pension funds and defer payments to schools and hospitals: The result is that the government has managed to scrape together just enough funds to meet IMF and ECB repayments in the last few months, while hospitals have no medicines and equipment, schools have no books and materials, and doctors and teachers leave the country. The situation for businesses is dire.

According to the Greek retailers' association each day about 59 business close down and 613 jobs are lost. Talks a week ago between head of the European Commission, Jean-Claude Juncker did not produce a breakthrough. Greece strenuously rejected creditors' proposed deal. Greece submitted a new list of reform proposals on Tuesday an extension of the program beyond its end of June deadline has also been discussed.

The new Greek proposals were already dismissed as inadequate by the EU by early Wednesday.

The chief European Commission spokesperson, Margaritas Schinas, said of the situation: “For this final push, the Commission is of the view that the ball is clearly on the court of the Greek government. It needs to follow up on the agreement on the meeting with President Juncker last Wednesday night.”

Those talks failed!

Pierre Moscovici, the EU Commissioner for Economic and Financial Affairs told a Greek delegation yesterday that "their latest suggestions do not reflect that state of the discussions between" between Brussels and Athens. Moscovici did say that work was continuing to break the deadlock on economic reforms that creditor's insist that Greece must agree to before unlocking the remainder of the funds in the bailout loan.

The Greek government finds it in an impossible situation as it attempts to be allowed at least a few of its anti-austerity policies as part of the deal in order to placate critics within its own party and retain some credibility with the Greek populace. So far creditors have given the government virtually nothing. The only option now for the Greek government seems to be to cave and spin the result positively or finally decide to default and perhaps leave the Eurozone.

Additional sources:
http://www.cnbc.com/id/102743366
http://news.yahoo.com/greek-debt-crisis-solution-possible-says-merkel-140954683.html
https://www.jacobinmag.com/2015/06/greece-syriza-imf-tsipras-debt-eu

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European central bank objects to greek foreclosure law

12/4/2015

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Greek flag ( courtesy of Fdecomite)

The European Central Bank (ECB) expressed concerns about a new Greek law intended to prevent banks from foreclosing on primary residences valued at less than 300,000 euros or about $317,000 US provided that the borrowers meet certain total wealth requirements.

The ECB claimed that the new law went well beyond just protecting low income debtors and could encourage strategic defaults by borrowers.

It could also encourage borrowers to simply stop paying loans unless incentives to make payments were included.

While the Greek government was able to scrape enough funds to make a key payment to the IMF on April 9th it still needs to convince its creditors to release funds from the extended bailout loan in order to make upcoming payments.

So far the Greek government has not presented or begun to implement reforms sufficient to convince creditors to release the funds. Actions such as passing this new law may cause Greek creditors to refuse to release the funds.

Creditors already have complained about the anti-poverty bill passed by the Greek government. The bill would provide for free electricity and food stamps for low-income families.

The Troika of the European Central Bank, International Monetary Fund, and European Commission complained that they had not been consulted about or approved the bill and that it could very well violate the terms of the bailout agreement. On the new bill, the Greek Economy Ministry had requested an opinion on the legislation from the ECB. Perhaps amendments could be made to satisfy ECB concerns.

The new law put an upper limit of 500,000 euros for the borrowers' total wealth, of which only 30,000 can be bank deposits or other liquid assets. The legislation is more generous than earlier legislation that expired just last year. It applied to homes worth 200,000 euros or less and required the borrowers to have an annual income of 35,000 euros or less with total assets not more than 270,000 euros.

The ECB noted: "The very broad scope of eligible debtors, which goes beyond the protection of vulnerable and low-income debtors, may create moral hazard and could lead to strategic defaults, undermining the payment culture and future credit growth. The draft law sets out significantly broader eligibility criteria in terms of the value of the protected property, the annual household income, the value of immovable and movable assets and the amount of deposits. It is likely that the prohibitions in the draft law will incentivize debtors who are not in real need of protection to stop meeting their obligations or reduce them significantly, even if they have the means to meet them in full."

Greek banks have a huge problem with bad loans which as of the end of the third quarter of last year were a whopping 34.2 percent of loans. Most of these bad loans were for homes. Euro zone officials claim to be shocked at the failure of the Greek government to offer detailed structural reforms that could convince them to release the remaining funds in the bailout which extends only to June.

Greece says it will not ask for a further bailout but without a new bailout it will not have the funds for payments this summer. The Greek debt crisis is far from over.

The Eurogroup has given the Greek government until April 20th to present to them a final list of reforms. A meeting of the group is scheduled for April 24.

Sources:
http://www.reuters.com/article/2015/04/11/us-ecb-greece-law-idUSKBN0N20BQ20150411
http://jurist.org/paperchase/2015/04/euro-bank-identifies-risks-in-greece-anti-foreclosure-law.php

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Grexit may come soon if no Greek deal

Chancellor Merkel says greek deal still possible

European central bank objects to greek foreclosure law

Ken Hanly

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