As expected, no progress was made between Greek FinMin Yanis Varoufakis and EU finance ministers at Thursday’s Eurogroup meeting in Luxembourg. Varoufakis warned his counterparts that Europe was very close to “accepting” a Greek “accident”, something the FinMin said EU officials have a “moral duty” to avoid before “uncontrollable events” occur. Varoufakis also implicitly accused the troika of attempting to incite a bank run.
While it wasn’t entirely clear what Varoufakis meant by “uncontrollable events,” it seems likely he’s referencing the fact that while politicians may be able to push back their own self-imposed deadlines as many times as they wish even to the point of rendering the entire effort “ridiculous”, — to use German Vice Chancellor and Economy Minister Sigmar Gabriel’s words — the reality on the ground in Greece is that the economy is collapsing on itself and deposit flight is now running above at €750 million euros each day. Put simply: an acute crisis of confidence among the Greek populace now risks plunging the country into a state of emergency.
In an attempt to address the quickly deteriorating situation, Brussels looks set to impose capital controls as early as this weekend and has scheduled an emergency summit on Monday. EU finance ministers will reportedly hold another meeting ahead of the summit. WSJ has more:
Eurozone leaders will try to clinch a deal on Greece’s flailing bailout at a hastily called crisis summit Monday, after finance ministers failed again to bridge the gap between Athens and its lenders.
The summit—eight days before Greece’s eurozone rescue runs out—will be one of the last chances to avert the specter of further economic meltdown for Greece and a messy exit from the eurozone.
After five months of fraught negotiations, “it is time to urgently discuss the situation of Greece at the highest political level,” said Donald Tusk, who presides over meetings of European leaders.
Christine Lagarde, managing director of the International Monetary Fund, said the extra meeting was necessary “to restore a dialogue with adults in the room.”
French Finance Minister Michel Sapin said Friday that eurozone finance ministers would meet again ahead of Monday’s summit.
“A summit like this is prepared by finance ministers so there will be a Eurogroup meeting to prepare,” he said.
Greek budget data released Thursday showed the toll the economic uncertainty is taking on state revenues. Budget income in May fell 24% short of the monthly target mainly due to a drop in taxes paid by companies, the finance ministry said.
Amid the standoff, many countries are now openly preparing for a Greek default and departure from the currency union.
For his part, Austrian finance minister Hans Schelling isn't optimistic and only hopes Austrians visiting Greece won't find that the ATMs have gone dark on Monday.
“Taking this to the political level the way Greece did is a very double-edged sword because all decisions in the end are taken in the Eurogroup”
“Calling a summit which possibly can’t be prepared because there are no decisions over the weekend may not be very fruitful”
Schelling says he assumes Austrian tourists will be able to withdraw money from Greek cash machines on Monday. “We will have to discuss with our leaders what positions have to be taken.”
“The finance ministers are acting on the basis of the memorandum of understanding. The finance ministers are acting on the basis of the decision taken in February”
“Certain flexibility was built in there. This flexibility isn’t accepted by Greece. We can’t take any more steps, the ball is entirely in Greece’s court.”
Indeed, waiting until Monday will be too late for the Greek banking sector. Depositors pulled more than €1 billion from banks on Thursday alone, prompting Greek banking officials to request an additional €3 billion in ELA allowances on the heels of Wednesday’s €1.1 billion cap increase.
The ECB’s governing council met Friday to consider the request. Regardless of the outcome, Greek banks may not be able to open on Monday according to governing council member Benoît Coeuré, whose opinion on the matter was ‘leaked’ by people close to the discussions. Yanis Varoufakis believes — and we have suggested this on a number of occasions over the past several months — that the troika is effectively colluding to incite a bank run in an effort to force Syriza into the types of concessions which will strip the party of its mandate and transform Tsipras into a pandering technocrat reminiscent of his predecessors. "Regrettably, no discussion of our proposal took place within the Eurogroup. Even more regrettably, instead of that essential discussion, we observed pernicious ‘leaks’ to the press regarding Greece’s banking system," the FinMin told Bloomberg.
Supporting the assessment that the institutions are exploiting the situation in the Greek banking system is Credit Agricole who says the ECB could decide to tie future ELA increases to a reform deal, a move which would represent the first concerted effort on the part of the central bank to assist the EU and the IMF in applying political pressure on Alexis Tsipras and Syriza, proving that the ECB, like the BIS from which it was born, is far from an apolitical institution. Credit Agricole also notes that Thursday’s pro-euro protests in Athens prove that Europe’s strategy of politicizing the detb negotiations is starting to bear fruit:
A potential statement today by ECB that makes any future ELA contingent on a reform deal could add to pressure on Greek govt, Valentin Marinov, head of G10 FX strategy at Credit Agricole, writes in client note.
Creditors’ strategy may be paying off as yday there was the first mass anti-govt protests in Athens.
Mkts in Europe could start panicking if deadlock persist into next week and June 30 deadline draws near.
EUR expected to come under sustained downside pressure if no resolution by Monday and fears of Greek default and capital controls escalate next week.
The rhetoric was unsurprisingly negative following yesterday’s Eurogroup. With the IMF confirming that no grace period applies to the June 30th bundled repayments and subsequently resulting in default should it be missed, Eurogroup President Dijsselbloem summed up yesterday’s progress by saying that ‘regrettably, too little progress has been made’ and that ‘no agreement is in sight’. EC Council President Tusk urged that ‘it is now time to urgently discuss the situation of Greece at the highest political level’, while Dijsselbloem, when questioned if he could imagine Greece being forced out of the Euro, said that ‘the way it goes now we’re going in that direction’. Meanwhile, Greek finance minister Varoufakis warned that an ‘accident’ was drawing ‘dangerously close’. It’s now looking likely that the EU summit proposed for Monday will conclude with a take it or leave it offer as well as a formal deadline. In the mean time, with deposit flight from Greek banks under huge pressure, the ECB’s Coeure said that he was unsure if Greek banks would be open on Monday although this was seemingly downplayed by an EU official in headlines later on Bloomberg. Capital controls appear to be drawing ever closer with each passing day however. So recapping the calendar now, an emergency ECB Governing Council meeting will be held today (scheduled for 11am GMT) to discuss the ELA cap. This will be followed by an EU Emergency Leaders Summit due 6pm GMT on Monday, while it’s possible that over the weekend we get another Eurogroup meeting to prepare the agenda. A Heads of State and Government Summit is then scheduled for 25th-26th June before IMF bundled payments due June 30th. Of course this timeline will be subject to what happens on Monday. It’s set up to be another jittery one for markets again next week however.