Greece: Another Big Picture Update And The Latest Calendar Of Events

Confused by the whirlwind of conflicting facts, not to mention outright lies, leaks and rumors, surrounding the negotiations of what will either be the third Greek bailout of its first, and final, Greek exit from the Eurozone? The following summary should answer most questions.

From DB's George Saravelos

The Emergency Eurogroup on Greece concluded late Wednesday evening with little progress being made. On the positive side, expectations were very low – all sides had suggested that no agreement should be expected today. On the negative side, it appears that the meeting concluded with the prospect that a joint Greece – Eurogroup statement could be signed by both sides. However, agreement on the phrasing of this statement broke down, with the Greek side ultimately rejecting the language as equivalent to an extension of the existing program – something which the prime minister explicitly ruled out in the Greek parliament a few days ago.

Semantics may be playing a role here, as the Greek side would clearly prefer a re-branded “bridge program” that may be more acceptable domestically. Substance cannot however be overlooked: the Greek prime minister has explicitly distinguished between a legal extension of the “loan agreement” (which the government desires and relates to funding disbursement) and a rejection of an extension of the “program”, which includes all the policy conditionality attached to financial assistance. Ultimately, the key difference between the two sides is that Greece doesn’t want to commit to the policy conditionality specified under the existing program, while the European side is requesting the opposite.

Irrespective of today’s outcome, we now have a little more visibility around how the debate will evolve into Monday’s Eurogroup meeting: the European side is offering a technical extension of the existing program (rather than our initial expectation of a 3rdrd ESM program), with the Greek side desiring maximum flexibility and the least amount of up-front commitments attached to completing the program review.

Our baseline remains that an agreement to move forward should be achievable. After all, this will only involve a commonly agreed written statement by both sides that marks the first step in a three-part process:

  • Step 1 consists of agreeing on a negotiating framework around which talks can begin (“the program extension”).
  • Step 2 will then involve the actual negotiation over the fiscal path, structural reforms and debt sustainability (“the policy conditionality around the program”).
  • Step 3 then requires the approval of any program conditionality by the Greek parliament before any formal disbursements to Greece are made.

Given the large distance separating the two sides, we view the successful completion of each of the three steps as a close call. Agreement at the Eurogroup on Monday will allow substantive negotiations to start, but any additional interim funding to Greece via increased t-bill issuance (if at all) is unlikely to be approved until progress on talks has been achieved. A continuation of the deadlock on Monday will immediately shift focus to Wednesday’s bi-weekly ECB review of the ELA limits of Greek banks: in the event of failure, we would expect the ECB to become more explicit on the timing of when ELA funding would be withdrawn or capped.

Ultimately, the alternative of ELA withdrawal and eventual capital controls for Greece is worse for all sides involved. But whether progress can be achieved under very pressing deadlines and large differences of opinion on the underlying policy path between the two sides remains to be seen.

Updated calendar

  • Thursday February 12th – European Council of EU Leaders, Tsipras likely to meet Merkel on sidelines
  • Sunday February 15th – Voting for new Greek President begins, EC Commissioner Avramopoulos most likely candidate, originating from New Democracy. Likely completed by second round on the following day requiring 151 MP majority
  • Monday February 16th – Eurogroup
  • Wednesday February 18th - Bi-weekly ELA review
  • Tuesday February 24th – 595mio EUR of bond interest/principal due
  • Saturday February 28th – Current EFSF program expires
  • 6th March – 297mio EUR IMF repayment due / 1.2bn EUR t-bill matures
  • 13th March – 334mio EUR IMF repayment due / 1.6bn EUR t-bill matures
  • 16th March – 556mio EUR IMF repayment due
  • 20th March – 334mio EUR IMF repayment due / 111mio EUR bond interest/principal due / 1.6bn EUR t- bill matures