“What they are delivering at the moment is not serious at all.”
That’s Michael Fuchs, a senior lawmaker for German Chancellor Angela Merkel’s Christian Democratic bloc and it seems to accurately reflect the sentiments of Greece’s creditors with regard to the latest set of “proposals” submitted by Athens.
Indeed, some have suggested that Greek PM Alexis Tsipras’ latest ‘effort’ represents more a step back than a step forward. As a reminder, Greece handed in [8] two three-page documents on Tuesday, one of which focused on fiscal targets and the other amounted to a request to tap the ESM in order to repay the ECB, which would amount to a similar (if not quite as egregious) circular funding scheme as that which the Greeks employed in May when they drew down their IMF SDR reserves to just €30 million in order to make a €750 million payment to the Fund.
On Tuesday, reports indicated that a rift between Merkel and German FinMin Wolfgang Schaeuble was growing wider, with many German lawmakers inclined to side with Schaeuble should it come to a decision between supporting Merkel’s inclinations towards concessions or the finance ministry’s less accommodative stance that implicitly sanctions cutting the Greeks loose.
Now, it would appear tensions are rising in Berlin with a growing number of German lawmakers committed to voting against a third bailout for Athens. Bloomberg has more:
Under the latest Greek plan, Tsipras wants access to bailout funds left in the European Financial Stability Facility and for the country’s banks to be allowed to buy more of the state’s short-term debt, an international official said. Greece also requested funds from the European Stability Mechanism to repay about 6.7 billion euros ($7.6 billion) of bonds held by the ECB that come due in July and August.
The official described the revised Greek plan as a vague rehash of earlier proposals and said it is not credible.
The Greek negotiating tactics are stoking frustration in Germany, where any changes in Greece’s bailout terms require backing by lawmakers. With legislators in her party bloc increasingly fed up, Merkel didn’t mention Greece during a speech Tuesday at a business conference in Berlin.
Tsipras’s government “hasn’t made a good impression on me in the last few days,” Thomas Oppermann, parliamentary leader of the Social Democrats, Merkel’s junior coalition ally, told reporters.
But it’s not just the Germans. Yesterday’s proposals from Athens have, by the looks of things, been roundly rejected by EU officials as a non-starter. Via Bloomberg again:
Impasse in talks between Greece and its creditors continues, no progress was achieved in Brussels talks on Tuesday, according to an international official directly involved in the negotiations.
Disagreements persist on fiscal targets, measures needed to achieve them, the person said, asking not to be named, as he wasn’t authorized to speak publicly on the matter.
On Wednesday, Tsipras will reportedly meet with Angela Merkel and French President Francois Hollande in Brussels in yet another attempt to use summit sideline diplomacy as an end-around to break the stalemate.
What’s important to remember here is that the reason Tuesday’s draft proposals didn’t appear “serious at all” could be because they indeed were not serious. We’ve suggested on a number of occasions that Tsipras is simply buying time, submitting drafts to keep up appearances with the real negotiations taking place between the PM and hardline members of Syriza, whose support is critical if Tsipras hopes to pass any agreement with creditors through parliament.
Bundling June’s IMF payments effectively gave Tsipras an extra three weeks to try and figure out what (if any) concessions would be acceptable to party hardliners. If he can successfully secure their support for ‘modest’ pension cuts and/or VAT hikes, he may be able to come to the table with something that will appear immediately agreeable to the troika compared to what the Greeks have suggested thus far. That, of course, would mean abandoning the mandate which got Syriza elected and, by extension would represent the successful use of financial leverage by creditors to effect political change and undercut Greeks' right to choose for themselves how they wish to be governed. It would also send a strong message to Podemos in Spain that reversing course on austerity could imperil the very existence of the party.
Still, it may already be too late to avoid a technical default on June 30. Here’s Reuters [9]:
An EU official said no euro zone leader wanted to be the one who pulls the plug on Greece, and Athens knew that. On the other hand, there was no willingness either to accept the Greek terms, resulting in stalemate.
The official said it was already too late to release money from the current bailout by June 30. So the only way to avoid default was for the European Central Bank to raise the ceiling on how much the Greek government is allowed to borrow by issuing T-bills, short-term debt that is bought by local banks.
That way the government could raise the 1.6 billion euros it must repay the IMF by the end of the month to avoid default.
In the final estimation, a real 'breakthrough' (and by "breakthrough" we mean concessions from Greece to avoid economic collapse) won't likely come until later this month. In the mean time, Tsipras is playing a dangerous game, because as Schaeuble famously said last month, "experiences elsewhere in the world have shown that a country can suddenly slip into insolvency."
