Leaked Eurogroup Statement Demands Much More From Greece, Keeps "Temporary Grexit" Option

As we reported earlier, not only are all the finmins and premiers currently in Belgium in a state of shock as the frailty of the entire European project is suddenly laid out bare for all to see, split between the "hard money" Northern States led by Germany and the "debt haircut" axis consisting of France, Italy, the IMF and, recently, the US, but so is a generation of Euro fanatics who even as the signs were all too obvious, clung to hope that "this time" an artificial monetary union may survive because, you know, people who underestimate "political capital" and some such.

And while "there is always hope" in the unforgettable words of France's Moscovici, it is once again up to Greece to convince Europe it really wants to stay in the Union. According to Reuters, the Eurogroup is about to release a statement, whose draft it has seen, which will demand much more from the tiny country caught in a state of permanent depression.

To wit: Greece will not be able to start negotiations on a third bailout until it makes changes to its sales tax and pension systems and strengthens the independence of its statistics office, a draft statement of euro zone finance ministers said on Sunday.

The conditions set out in the draft effectively exclude the Eurogroup ministers taking a decision on a next financing package for Greece during their meeting on Sunday because they all have to be passed by the Greek parliament.

"The Eurogroup... came to the conclusion that there is not yet the basis to start the negotiations on a new programme," the draft statement, seen by Reuters, said.

To begin such talks, the ministers would first want Greece to improve its VAT and pension systems, broaden its tax base to boost revenues and strengthen the independence of ELSTAT, the Greek statistics agency.

"Only subsequent to legal implementation of the above mentioned measures can negotiations on the memorandum of understanding commence, subject to national procedures having been completed," said the draft. It is set to be presented to euro zone leaders meeting later on Sunday in Brussels.

In other words, back to square one in the blame game, where Europe tightens the screws on Greece with even more extreme demands, so that it is Greece that either turns down the proposal (and its sovereignty as well because that's what it boils down to) entirely or requires yet another referendum. In the meantime, with every passing day its bank need an additional €1 billion in bail out funding, money which will likely not come resulting in a matched (and accumulating) haircut to Greek deposits.

Some other details from the leaked Eurogroup statement, with an emphasis on pensions just as we expected las week, as well as undoing all laws passed in 2015 that Germany did not preapprove:

The Eurogroup welcomes the assessment by the institutions that the list of policy commitments of the Greek authorities represents a basis to start the negotiations on a new program. The Eurogroup also agrees with the institutions that the package needs to be significantly strengthened and broadened in order to provide for appropriate conditionality for a possible three-year ESM program. The Eurogroup thus welcomes the additional following commitments of the Greek authorities on the basis of a clear timetable:

  • fully comply with the medium-term primary surplus target of 3.5 percent of GDP by 2018, according to a yearly schedule to be agreed with the institutions;
  • carry out ambitious pension reforms and specific policies to fully compensate for the fiscal impact of the Constitutional Court ruling on the 2012 pension reform and to implement the zero deficit clause;
  • adopt more ambitious product market reforms with a clear timetable for implementation of all OECD toolkit I recommendations, including Sunday trade, sales periods, over-the-counter pharmaceutical products, pharmacy ownership, milk, bakeries. On the follow-up of the OECD toolkit II, manufacturing needs to be included in the prior action;
  • on energy markets, the privatization of the electricity transmission network operator (ADMIE) must proceed, unless replacement measures can be found that have equivalent effect, as agreed by the institutions;
  • on labor markets, undertake rigorous reviews of collective bargaining, industrial action and collective dismissals in line with the timetable and the approach suggested by the institutions. Any changes should be based on international and European best practices, and should not involve a return to past policy settings which are not compatible with the goals of promoting sustainable and inclusive growth;
  • fully implement the relevant provisions of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, in particular to make the Fiscal Council fully operational;
  • adopt the necessary steps to strengthen the financial sector, including decisive action on non-performing loans, transposition of BRRD and measures to strengthen governance of the HFSF and the banks;
  • develop a significantly scaled up privatization program with improved governance. A working group with the institutions shall provide proposals for better implementation mechanisms;
  • amend or compensate for legislation adopted during 2015 which have not been agreed with the institutions and run counter to the program commitments;
  • implement the key remaining elements from the December 2014 state of play of the fifth review of the second economic adjustment program."

All of which, of course, assumes that Europe wants to keep Greece in the Eurozone. Which is a very aggressive assumption if, indeed, as Dow Jones reports the Draft also includes the "Temporary Grexit" clause at Germany's request.

Failing that, Greece can just liquidate its nation, one asset at a time, until it sells some €50 billion worth of sovereign assets to repay Troika debt:

So if we had to summarize the current state of play: Germany and 5 other "northern" states want Greece out, but they generously offer Greece the opportunity to push the "Grexit" button itself (especially since it is only "temporary"). Unless, of course, Greece is willing to cede all of its sovereignty to Germany in which case it can generously stay. Oh, and please remit all Greek left kidneys as part of the deal.