Euro zone finance ministers have failed to agree a deal with Greece which is needed to unlock the next instalment of its multi-billion euro bailout.
Eurogroup president Dijsselbloem speaking ahead of a meeting of the eurozone’s 19 finance ministers, had already dampened Greece’s hopes for a decision.
The ECB on its part has said all along that Greece will only become eligible for QE if the debt is sustainable, which at the moment is not thought to be without the debt relief measures demanded by the IMF. So it looks like Greece will once again be excluded from the QE programme
It worth remembering it was Mario Draghi’s secret deals with Greece when he was still part of Goldman, that masked the Greek debt mountain, and made the country’s surplus appear artificially high. The eventual result was not one, not two, but three Greek bailouts.
Greece’s creditors in the eurozone also said they would be prepared to make concrete debt relief proposals if the country meets its side of the bargain, something which Greece has largely managed to achieve. Last week the Greek parliament approved pension cuts and tax hikes but it has to show the measures are being fully implemented.
European Commissioner, Pierre Moscovici: “We are talking about a range of very considerable commitments… these prior actions involve 140 measures, and they are not minor reforms. I briefed the Eurogroup that 104 of the 140 mentioned could already be regarded as done. Indeed today the number was raised slightly because further progress was achieved so we stand now at 115 completed actions.”
But the main reason why no new loans could be agreed was the lack of agreement between the euro zone and the IMF on debt relief for Greece.
Germany does not want to pay out any new loans until the IMF joins the bailout, and the IMF says it can only do so if it gets more clarity from the euro zone on what kind of debt relief it will offer Greece at the end of the bailout in 2018 to make its debt sustainable.
“The Eurogroup held an in-depth discussion on the sustainability of Greece’s public debt but did not reach an overall agreement,” said Jeroen Dijsselbloem who is unlikely to remain finance minister when the new government is formed in Holland later this year, but who hopes to retain his position as president of the eurogroup with the support of Schaeuble.
The IMF, which has demanded debt haircuts in order to fund the ongoing bailout, has repeatedly raised doubts about Greece’s ability to maintain such an optimistic budget performance in the long term. Less ambitious fiscal targets would increase the amount of debt relief needed to make the debt sustainable.
Work will continue in the coming weeks with the aim of reaching a conclusion on June 15 at the next meeting of ministers, Dijsselbloem said.
Last May, Euro-area finance ministers committed to a set of measures to ease the repayment terms on Greek bailout loans after the end of the program in 2018, but the degree to which these measures will be implemented is still a subject of contention.
Among the options listed is the extension of maturities on euro-area loans to Greece, as well as the capping and deferral of interest payments. The IMF has said it wants these options to be specified further, so that numbers “add up” and annual Greek debt refinancing needs are kept below clearly defined thresholds
The reason why the can was kicked again is that Greece doesn’t have a large maturity deadline until July, when €7 billion euros in obligations come due, and Europe has a habit of waiting until the last moment before disbursing the funds that Athens will then turn around and use to repay the ECB.
Delaying resolution of the program review adds to months of uncertainty that have taken their toll on the Greek economy – which has slipped back into recession –and kept the country from returning to the bond market.
Recession notwithstanding, Dijsselbloem also said the parties agreed on a target for Greece’s primary surplus, which excludes interest payments, of 3.5% of gross domestic product until 2022.
For now, however, Greece has to wait, most likely until the very last minute before the €7 billion in July obligations come due.
As there seem to be no amount of austerity that seem to satisfy Greece’s european partners, Greece is once again left with the choice of giving in to more demands or walk away from the deal and default.
Sources: Bloomberg, Reuters, Zero Hedge
