Greece May Need To Issue IOUs Schaeuble Says After Latest Failure To Reach A Deal

In many ways, four months of negotiations between Greece and its creditors can be summed up with the following two headlines from this morning:

  • GREECE VERY CLOSE TO SEALING DEAL WITH CREDITORS: SPOKESMAN
  • GREECE WON'T COMPROMISE ON LABOR REFORMS, PENSIONS: SPOKESMAN

Those came back-to-back believe it or not, which underscores the whole problem: the Greek government wants money but doesn’t want the conditions which come with the money because those conditions entail the wholesale abandonment of the mandate that got them elected in January. 

Despite it all, PM Alexis Tsipras still thought he could effectively secure a deal in Latvia this week by whispering to Angela Merkel on the sidelines of a Eurogroup meeting, a tactic he’s tried before to no avail. Unsurprisingly, these “sideline” talks produced exactly nothing after Tsipras kept Merkel and French President Francois Hollande up until 1 in the morning in Riga, proving that, to quote Jean-Claude Juncker, “Riga just isn’t the place” for eleventh hour bailout negotiations. Here’s more from Bloomberg:

With time running out for a deal to free up the remaining 7.2 billion-euro ($8 billion) tranche of aid, Merkel’s discussions in Latvia with Tsipras and French President Francois Hollande broke up in the early hours of Friday with an agreement only to keep talking. Tsipras talked of a resolution “soon,” whereas Merkel said there’s “a whole lot to do.”

 

“It was a very friendly, constructive discussion,” the chancellor told reporters on Friday as she arrived for the second day of a two-day European Union summit in the Latvian capital, Riga. “But it was very clear that further work has to be done with the three institutions.”

 

The meeting marked another rejection by Merkel of the latest Tsipras attempt to bypass finance ministers and strike a political deal at the level of government leaders, highlighting German insistence that Greece’s budget numbers must add up before aid can be released.

 

A short statement released separately by the French and German governments after more than two hours of talks with Tsipras was devoid of earlier optimism expressed by Hollande at paving the way for an accord as soon as the end of the month. In its place, the governments of the two biggest euro-area economies talked of agreement “to stay in close contact.”

 

A government official, in a debriefing after the talks broke up about 1 a.m., signaled Greek frustration by saying that a main obstacle is that the International Monetary Fund needs to be on board. The IMF is one of Greece’s creditors along with the European Central Bank and euro-area governments. “Open issues” remain with creditors, including pensions, sales-tax rates and targets for a primary budget surplus, the official told reporters.

 

The French and German statements lacked Hollande’s upbeat tone as he arrived in Riga, when he had opened the prospect of striking a political deal that could help lead to an accord by finance ministers at the end of May or early June. Without an agreement, Greece risks a default that would put in question its future in the 19-nation euro region.

 

Absent too from the final statements was any reference to an extraordinary finance ministers’ meeting on Greece. Hollande had said that the discussion with Tsipras would “help prepare for the expected deadline, especially the eurogroup” meeting of euro-area finance ministers “at the end of May or in early June.” That suggested a special meeting since the next regular gathering isn’t due until June 18.

 

France and Germany offered to provide assistance to Greece and Tsipras whenever questions come up, Merkel said. “But the accord must be reached with the three institutions and very, very intensive work has to be done.”

As for Germany — where Christian Democratic lawmakers have for weeks been pressuring Merkel to call it quits on Greece — the Finance Ministry and the central bank are out questioning the utility of continuing to negotiate with Syriza.

First there’s Bundesbank chief Jens Weidmann...

“The prospect of a sustainable stabilization of Greece is decisive, that requires an improvement in competitiveness, solid state finances and better administrative structures. The IMF has also rightly advised this. Hence, the ball is clearly in the court of the Greek government.”

...and then the German finance ministry...

“International Monetary Fund participation in negotiations on Greece’s aid program is mandatory

requirement.”

...and finally, the Schaeuble was unleashed…

German Finance Minister Wolfgang Schaeuble conceded the possibility that Greece may need a parallel currency alongside the euro if the country’s talks with creditors fail, people familiar with his views said.

Yes, “conceded the possibility,” and while those who actually witnessed the German FinMin’s comments claim he “didn’t endorse the idea”, we imagine his feelings wouldn’t be hurt if it came to pass because as we’ve seen, Schaeuble is no fan of radical socialist shenanigans. 

Meanwhile, Commerzbank says the country’s economy (which, as a reminder, is losing €22.3 million a day) not to mention its citizens, simply can’t take the pain any longer and when comparing Greece to other historical instances of EM “turmoil”, the country doesn’t come out so well.

Via Bloomberg:

As another round of aid talks between the Mediterranean nation and its creditors ends without a deal, its economy is faring even worse than a string of developing countries which suffered traumas in the last two decades. That leaves Commerzbank AG declaring the country is in little position to pare its debt and that default or a restructuring may loom.

 

“Just as with emerging markets in the past there is a point in time where you need to move on to the next stage rather than being paralyzed,” Simon Quijano-Evans, head of emerging market research at Commerzbank in London, said in a telephone interview. “In Greece, we need to think of next steps and be innovative.”

 

To illustrate Greece’s pain, he published a report this month comparing how the economic fallout from its five-year-old crisis compared with the bouts of turmoil suffered in the last two decades by Turkey, Argentina, Latvia and Thailand. The result illustrates why Commerzbank sees a 50 percent chance of Greece ultimately leaving the euro area.

 

“Comparing Greece’s experience so far with that of EM crisis countries shows very simply that the country’s already stressed economy and electorate are unable to cope with more pain,” said the Commerzbank economist.

 

While Athens has imposed the tightest fiscal squeeze of the five and pushed its budget balance excluding interest payments into surplus from a deficit of about 10 percent of gross domestic product in 2009, Turkey and Argentina were doing better at the same stage.

Yeah… about that budget balance…

  • GREEK MARCH CURRENT ACCOUNT DEFICIT WIDENS TO EU404M

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We’ll close with the following comments from Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington who spoke to Bloomberg today by phone:

“[Germany is ready] to take this brinkmanship very far [with Schaeuble as] attack dog. We’re in this game of chicken. The problem is that Alexis Tsipras is riding a scooter and Wolfgang Schaeuble is driving an armored BMW.”

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Summing up all of the above in two pictures...