"We Should Admit This Isn’t Going To Work": One Country's Grim Assessment Of Greece's Future

On Saturday, Frankfurter Allgemeine Sonntagszeitung reported that Greece’s creditors - the “quadriga” as it were - had agreed on the terms to be imposed on Athens in return for an ESM rescue package worth some €86 billion. The 27-page draft MOU is "substantial and far reaching," and includes cuts to defense spending and subsidies for farmers, Bloomberg says, summarizing the FAZ report. 

Greece desperately needs to close the deal next week. If the new program isn’t formally in place by August 20, a €3.2 billion payment to the ECB won’t be possible - a default to the central bank would likely be catastrophic, as Greece’s banking sector would collapse entirely in the absence of the ELA liquidity drip.

Once Greek officials agree to the conditions, the draft will be circulated to EMU member countries for approval and Alexis Tsipras will need to go once more to parliament where he hopes the Syriza rebellion which imperiled the first two votes on bailout prior actions will have died down in the wake of a dramatic party meeting late last month in which the Greek Premier insisted that for the time being, "opposing voices must stop." Here’s Reuters:

Greece is on track to complete a draft deal on a third bailout by Tuesday and possibly get a first disbursement by Aug. 20 to meet a key payment, sources familiar with a conference call of senior EU finance officials late on Friday said.


Greek Prime Minister Alexis Tsipras has tried to force the pace of the talks, keen to wrap up agreement on sensitive economic reforms by mid-August, while many Greeks are on holiday, and receive an initial aid disbursement by Aug. 20 in time to make a bond payment to the European Central Bank.


If a draft memorandum of understanding and an updated debt sustainability analysis are ready as planned on Tuesday, the Greek government and parliament would be expected to approve them by Thursday.

And more from Kathimerini:

Greece will aim to finalize an agreement with lenders next week in the hope of being in a position to pass the deal through Parliament by next Thursday.


There are a number of issues that need to be ironed out in the next couple of days if the government is to be able to keep to a timetable that would allow the European Stability Mechanism to disburse money before Greece has to repay 3.2 billion euros to the European Central Bank on August 20.


Some of the issues on which there is yet to be agreement include changes to farmers’ taxation, scrapping nuisance taxes, further product market liberalization, deregulating some professions and allowing Sunday trading.


The other issues that must be settled are which prior actions have to be approved now and how much fresh funding Greece will receive on approval of the third bailout.


If the new agreement is approved by the Greek Parliament on Thursday, eurozone finance ministers are likely to convene the next day to give their green light as well. 

Of course not every EMU finance minister is convinced that the ad hoc, rushed effort to disburse aid to Greece is prudent. As Reuters goes on to note, German FinMin Wolfgang Schaeuble (who, you're reminded, would much prefer that Greece simply leaves the currency bloc so that Berlin can send a message to Rome and, more importantly, to Paris) favors a second bridge loan from the EFSM so as to allow for futher deliberation:

Some countries, led by Germany, were keen to nail down more specific long-term reform commitments in addition to the immediate actions to be implemented, the source added.


Germany, keen on fiscal discipline and far-reaching economic reforms, is sceptical of any early deal and doubts a multi-billion-euro bailout can be agreed by mid-August.


"It remains completely open," said one politician from the ruling coalition government, adding that Finance Minister Wolfgang Schaeuble was taking a cautious view of comments by commission chief Jean-Claude Juncker on the chances of a deal.


Greece would not get a free ticket to new aid, the coalition politician added.


The Sueddeutsche Zeitung said the German Finance Ministry favoured another bridge loan to give Greece and its creditors time to negotiate a comprehensive reform programme.


The ministry says a range of issues remain to be settled.

Yes, a "range of issues" are still up for debate, the most pressing of which is the simple question of whether the entire effort is ultimately for naught, something the IMF has suggested on a number of occasions. One person who thinks the new bailout is an exercise in futility is Finnish Foreign Minister Timo Soini who, as Bloomberg reports, thinks Europe should simply admit "that this isn’t going to work."

A third Greek bailout won’t work and will only prolong the difficulties plaguing the euro area, according to Finnish Foreign Minister Timo Soini.


But his party, the euro-skeptic the Finns, is ready to discuss another rescue package because allowing Greece to fail would only add to Europe’s costs, he said.


The Finns party, which in April became part of a ruling coalition for the first time, has no choice but to support a bailout since not doing so would cause the three-party government to collapse. That would only open the door for the left-wing opposition, Soini said.


"I kept my party in the opposition for four years because of this subject," he said. "But with this government structure we can’t block the program alone and we’d be replaced."



While Finland drove a hard bargain during Greece’s second bailout, it may no longer have the clout to block a deal. Finland has already made its 1.44 billion-euro contribution to the permanent European Stability Mechanism. Should Europe decide that the future of the euro zone is at stake, a bailout won’t require unanimous backing from members; 85 percent is enough.


Even without an imminent bailout agreement, a European fund deployed in July to help Greece clear arrears contains about 5 billion euros and could be tapped again for a bridge loan.


According to Soini, bridge financing will do little to solve the long-term fiscal plight Greece faces.


"This bridge funding isn’t going to be final solution," he said. "There’s no solution for this particular problem that doesn’t cost Finnish taxpayers." 

Unfortunately, Soini's assessment applies to a number of EMU governments and in the end, the paradox of the Greek tragicomedy may well be that no one (including Greece) wants to keep Greece in the EMU but everyone will endeavor to preserve the status quo because changing things is simply too painful. With that in mind, we'll leave you with the following quote from Soini:

"If Greece collapsed and Grexit would be tomorrow’s reality, we would lose 3-4 billion euros more or less at once. So I hope that the EU and euro zone, that in due course, we can face the facts and say enough is enough and that we must do something else."