Early last month, negotiations between Greece and creditors took a decisive turn the worst when the IMF broke from the rest of the troika [9] on the feasibility of a third Greek bailout program.
The split came when Poul Thomsen, head of the IMF’s European department told EU creditors that Greece is so far off track economically, the Fund was not only against a new bailout for Athens, but in fact was considering whether or not to withhold its portion of remaining funds under the existing program.
Thomsen said the fact that Greece was on track to run a deficit when it should be well on its way to running a budget surplus suggests to the IMF that EU creditors should be prepared to write down their Greek debt so as to make the country’s debt-to-GDP ratio more ‘sustainable.’ Unsurprisingly, Europe wasn't particularly enthusiastic about the idea.
Thomsen’s remarks — which were delivered to EU finance ministers at an April meeting in Riga — were followed up by reports that the IMF had informed the ECB and the European Commission that the Fund would not be participating in a third Greek bailout program.
Earlier today, those reports were confirmed [10] as the IMF has withdrawn its team and sent its lead negotiators back to Washington. Meanwhile, a meeting between Tsipras and European Commission President Jean-Claude Juncker was billed by one EU official as a "last attempt" to convey the urgency of the situation to the Greek PM. European Council President Donald Tusk (who met with Tsipras on Wednesday) has also voiced frustration at Athens' apparent belligerence in the face of economic oblivion. FT has more [11]:
In a series of meeting in Brussels, Mr Tsipras was told his government must quickly decide whether to accede to a raft of economic reforms or face bankruptcy.
“We need decisions not negotiations now. It’s my opinion that the Greek government has to be, I think, a little more realistic,” said Donald Tusk, the European Council president, who met Mr Tsipras privately on Wednesday.
The IMF was equally direct, announcing its lead negotiators had returned to Washington and citing “major differences” and a lack of progress in negotiations. “There are major differences between us in most key areas,” said Gerry Rice, the IMF spokesman. “There has been no progress in narrowing these differences recently.”
Officials believe that if no deal is struck by early next week, there will not be enough time for Greece and other eurozone parliaments to pass the needed legislation for Athens to access rescue funds before two big bills fall due: a €1.5bn loan repayment to the IMF on June 30, and a €3.5bn bond redemption on July 20.
Jean-Claude Juncker, the European Commission chief, met Mr Tsipras on Thursday in what one EU official characterised as a last-ditch effort to get the Greek leader to accept a deal. “If the process was working properly, the president would not have had to have a meeting with Tsipras today,” the official said.
Meanwhile, in Germany, lawmakers (who are increasingly defecting to the Schaueble camp as it relates to Greece) have apparently ruled out a third program for Athens. Here's Reuters [12]:
The German government is against a third aid programme for Greece under any circumstances, even if there was an agreement between Athens and its international lenders on a cash-for-reforms deal, the German mass daily Bild reported on Thursday.
German Chancellor Angela Merkel is facing growing opposition among her ruling conservatives to granting Greece any further bailout funds.
Athens' unwillingness to accept further economic reforms is turning a growing minority of Merkel's own conservatives against the prospect of unlocking a final tranche of Greece's second bailout or agreeing to a third aid programme.
It now appears the only hope for Tsipras is to convince the ECB and the European Commission to tap existing EU bailout facilities. Here's Reuters again:
The current second aid programme could be extended and be broadened with funds from other programmes such as the 10.9 billion euros ($12.32 billion) that were originally designed to rescue Greek banks.
However, this could only happen if Athens was willing to implement substantial reforms, it added.
If Greece were to accept the plan, lenders would aim to unlock 10.9 billion euros in unused bank bailout funds that were returned to the European Financial Stability Fund. This would enable Greece to cover its financial needs through July and August, the sources have said.
What happens after that is anyone’s guess because as we’ve shown [13], whether Greece kicks the can two months or two years it really doesn’t matter because if Athens opts to remain in the EMU, Greece is doomed to debt servitude for at least the next four decades.
Unsurprisingly (because this is Europe after all) German lawmakers now seem to be against an extension of Greece’s current program, which directly contradicts the 'solution' discussed above:
- MERKEL CAUCUS MAY REFUSE GREEK BAILOUT EXTENSION: KRICHBAUM
- KRICHBAUM DOESN'T SEE MAJORITY IN MERKEL CAUCUS: TAGESSPIEGEL
Through it all, Tsipras likely believes he can buy a bit more time in order to cement an agreement with Syriza party hardliners. Accepting a 'deal' without first ensuring it can pass the Greek parliament could be a political disaster and may be followed, in relatively short order, by social upheaval.
Whatever the case, creditors are prepared to pull the plug. Here's Donald Tusk to sum up the mood in Brussels:
“There’s no more space for gambling, there’s no more time for gambling. The day is coming, I’m afraid, where someone says the game is over."
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Here's Tsipras earlier today at the EU CELAC Summit. He does not appear to be having a good time.
