Grexident Looming: Eurogroup Meeting Ends Prematurely With No Deal

Update: The latest from Brussels appears to be that the meeting of EU FinMins has now broken up with little progress.

EU leaders will now convene for a two-day summit, which means the back-and-forth won't likely end soon. Additionally, Christine Lagarde has indicated she may not be willing to exercise her discretion and delay delivery of a formal failure to pay notice to the IMF board, setting up the possibility that accelerated payment rights for Greece's other creditors could be triggered on July 1.

  • ASKED ABOUT GREECE'S JUNE 30 REPAYMENT, IMF SPOKESMAN SAYS DOES NOT EXTEND DEADLINES AS MATTER OF POLICY
  • IMF SPOKESMAN SAYS EXPECT MANAGING DIRECTOR TO INFORM BOARD 'PROMPTLY' IF GREECE MISSES REPAYMENT DEADLINE 
  • SENIOR U.S. OFFICIAL SAYS ALL NATIONS IN IRAN NUCLEAR TALKS COMMITTED TO JUNE 30 DEADLINE BUT IT COULD BE MISSED BY A BIT
  • EUROGROUP'S DIJSSELBLOEM SAYS DOOR IS STILL OPEN FOR GREEKS TO ACCEPT CREDITORS PROPOSALS
  • DIJSSELBLOEM SAYS EUROGROUP IS OVER FOR NOW, HE WILL INFORM EU LEADERS OF STATE OF TALKS

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For a couple of hours on Tuesday, it appeared as though Greece had managed to sneak a debt deal proposal by the troika that, while hitting some of the mandated fiscal targets, did not include the pension cuts and VAT concessions that had previously constituted creditors’ “red lines.”

Then, on Tuesday evening, the IMF apparently decided to read the terms of the “deal” and Christine Lagarde did not like what she saw.

A few hours later, we were back to square one and Greek PM Alexis Tsipras was calling the IMF’s stance “weird” although in reality, the Fund was simply reiterating what it’s been saying since May, when Lagarde lost patience with the situation following Athens’ move to make a €750 million payment out of its SDR reserves.

Following meetings with EU officials and then with Lagarde and ECB chief Mario Draghi on Wednesday evening, Tsipras is back at it on Thursday, in a frantic attempt to win over EU finance chiefs (who are collectively losing their will to keep Greece in the currency bloc) and the IMF as the EU summit kicks off in Brussels. Here’s Bloomberg summing up:

As the pressure grew, Tsipras met with International Monetary Fund chief Christine Lagarde, European Central Bank President Mario Draghi and European Commission President Jean-Claude Juncker after concluding hours of discussions Wednesday that yielded no breakthrough. Euro-area finance chiefs are also in Brussels trying to find a way to broker an agreement that will satisfy all sides ahead of a two-day summit of European Union leaders that begins later Thursday.

The contradictory headlines are coming fast and furious Thursday morning as confusion reigns. 

  • GREEK OFFICIAL SAYS GOVT SUBMITTED PROPOSALS TO INSTITUTIONS
  • GREECE DOCUMENTS CAN BE BASIS FOR A DEAL: EU OFFICIAL
  • INSTITUTIONS UNANIMOUSLY AGREED ON GREECE PAPERS: EU OFFICIAL
  • GREEK GOVT REMAINED FIRM IN ITS POSITIONS, OFFICIAL SAYS
  • INSTITUTION DOCUMENTS NOT ACCEPTED BY GREEKS: EU OFFICIAL
  • DIFFERENCES BETWEEN GREEK, INSTITUTIONS BAILOUT DOCUMENTS 'NOT THAT BIG"--OFFICIALS

It now appears the Greeks have missed a deadline to present a counter proposal ahead of the finance ministers' meeting, meaning the troika's proposal will be discussed instead, even though the Greeks rejected that proposal yesterday.

  • GREECE, CREDITORS FAIL TO REACH AGREEMENT AHEAD OF EUROGROUP

And now that meeting has been delayed, presumably because it's pointless to discuss a proposal that one side has already rejected.

  • EUROGROUP MEETING DELAYED BY 30 MINUTES TO 1:30 PM IN BRUSSELS

Here's Austrian Finance Minister Hans Joerg Schelling attempting to explain where things stand:

“I believe that it still is possible to come to an agreement. This is no longer about days; it’s about hours. We have been commissioned by the summit to present a compromise by 4 p.m. Negotiations took the entire night. The Greeks are rejecting every compromise, constantly present new wishes. We are prepared to make an agreement, to help Greece as finance ministers, but the responsibility lies solely with Greece to accept these compromises.”

While Wolfgang Schaueble says if anything, the divide between Athens and Brussels is growing:

  • GERMAN FINMIN SAYS: WE HAVE NOT MADE PROGRESS; 
  • GREEKS HAVE MOVED BACKWARDS RATHER THAN FOREWARDS
  • SCHAEUBLE: THE DIFFERENCE HAS BECOME BIGGER
  • GUINDOS SAYS GREECE REJECTED INSTITUTIONS' PROPOSAL

Ahead of the meeting, finance ministers were given a so-called "feasibility blueprint," which appears to be a largely unchanged version of what was tabled by the troika on Wednesday (document embedded below). Here are some highlights from FT:

The first place to look is page three of the nine-page document, where the section on pension reforms begins. This has become the major sticking point between the two sides and, while it makes some concessions to the Greek government, it is very much in keeping with creditor demands that early retirement schemes be curtailed and the effective retirement age be raised very quickly.

 

Under the plan sent to finance ministers, Athens would ensure the retirement age is moved to 67 by 2022, significantly faster that Alexis Tsipras, the Greek prime minister, had sought. Originally, Athens was pushing for 2036, but Mr Tsipras’ compromise plan submitted on Monday moved that to 2025.

 

There is an important creditor concession in the pension reforms, too, though. Creditors have been trying to get rid of a “solidarity grant” programme that provides a top-up bonus to poorer pensioners, know by the Greek acronym EKAS, by 2017 at the latest. Athens had offered 2020. The new plan splits the difference and goes with December 2019.

 

The other major sticking point between the two sides has been an overhaul of Greece’s value-added tax scheme. Here, too, the plan makes some compromises to the Greek plan. Creditors had originally sought a simplified two-tier system with most goods taxed at the top 23 per cent rate. Creditors have now gone along with a Greek idea of a three-tier system, including a “super-reduced” rate of 6 per cent for pharmaceuticals, books and the theatre.

 

Importantly, the creditors have conceded on keeping electricity in a middle 13 per cent VAT rate, something Athens has long demanded. “Basic food” also goes into the middle rate, but it appears all other kinds of foods – including restaurants and processed foods – goes at the higher 23 per cent rate. Athens has attempted to keep process foods at the reduced middle rate.

 

Another blow to Athens: the creditors plan would strip out VAT exemptions for Greek islands. This is particularly sensitive for Mr Tsipras’s coalition partner, the Independent Greeks, who have argued it was unfair for some of Greece’s most remote islands to pay the same kind of taxes that mainlanders do.

 


Meanwhile, the ECB has reportedly not raised the ELA ceiling on Thursday as of yet, but stands ready to lift the cap if the situation deteriorates, which certainly seems to be the case. "ECB stands ready to review Greek ELA ceiling in next 24 hours, if that is needed," a Greek official told Bloomberg. Notably, there are also reports that some ECB governing council members are running low on patience regarding Greek banks' dependence on emergency funding. More specifically, Bundesbank chief Jens Weidmann is out reiterating his concern that the ECB is effectively financing the Greek government. Via Reuters

The Eurosystem of central banks should not provide bridge financing to Greece, the head of the Bundesbank said on Thursday, warning that Greek lenders' reliance on emergency funding raised questions over their solidity.

 

In his strongest criticism yet of the provision of Emergency Liquidity Assistance (ELA) to Greek banks, Jens Weidmann said those banks should not continue to buy the short-term debt of their government.

 

"The Eurosystem must not provide bridge financing to Greece even in anticipation of later disbursements," said Weidmann, who also sits on the European Central Bank's Governing Council, which approves such funding to Greece.

 

"When banks without access to the markets buy debt of a sovereign which is likewise locked out of the market, taking recourse to ELA raises serious monetary financing concerns," he said in a speech to be delivered at a conference in Frankfurt. 

And now this:

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Proposal reportedly under discussion at Thursday's Eurogroup meeting:

Feasibility Agreement