Greece: Breaking Comments and Update

Published on June 11, 2015

Wire services this morning reported Eurogroup President Jeroen Dijsselbloem to have said a deal by the next Eurogroup meeting (June 18) is still possible. Well perhaps, but that would be quite a stretch given how much still has to take place for that timeline to be met. To wit note the just released comments from IMF spokesman Gerry Rice pointing to the enormous gulf that remains between Greece and the IMF (on pensions, taxes, and debt financing).

But that is why EU officials have been considering a short term (not the 9 month) extension and contingency funding plan we flagged in yesterday’s report “Greece: Averting a June 30 Accident,” that is assuming an agreement is actually somewhere in sight. It is also why Dijsselbloem actually said it is “theoretically” still possible to meet that deadline.

Note also a little noticed report in Der Bild headlined something like Germany will Reject a Third Program (but will seek an extension to the existing program). Buried  in the piece is confirmation of one of the key developments we have been flagging – namely  that German lawmakers may be considering the option of releasing the 10.9 billion euro EFSF/HFSF funds as an alternative to a formal program disbursement.

But this will obviously also be controversial and assume Tsipras can and will deliver credible and as we have written politically “highly visible” concessions and a budget plan for meeting the 1% primary budget target.

But that is a target we in fact suspect Tsipras may have (more or less) acceded to at the heads of state level overnight, despite Varoufakis back in Athens ever so helpfully again trumpeting otherwise (it can and will fall in place formally only once everything is sealed). The only wiggle room left for Tsipras from the plan presented on June 3 we believe may remain in how to get to those numbers – and any changes to that outline better be presented quickly.

But to say there is trust that Athens will not backtrack again is putting it mildly. As we also wrote yesterday EU officials were livid at what they perceived to be a back tracking on a primary budget deal from Athens. And it is within this context comments from CDU lawmaker Gunther Krichbaum should be taken warning Merkel may not have a majority within her own coalition to pass an extension barring a 180 degree U-turn from Tsipras.

Not to get too far ahead on what clearly still remain brutal negotiations, but on the big “ask” from Athens for some debt relief via “re-profiling,” a major issue for IMF involvement as well in assessing the sustainability of any further assistance to Greece, note also comments from ECB Executive Board Member Benoit Coeure in an interview yesterday in La Croix.

While “demurring” on any opinion on debt restructuring – it is not a decision for the ECB – Coeure nevertheless noted that it is not a taboo subject per se and was done already for private sector bonds, that the EU loans are already on extremely generous rates and on long term schedules, but nevertheless defers on any decision on the ECB bond holdings that the Greek authorities have targeted – these are holdings the ECB expects to be paid in full, (and the July and August redemptions can be with the EFSF/HFSF money) – but that as with all other loans would be a decision for the taxpayers to ultimately fund were they to be restructured or not.

But that as we have said is a story for later, and even the discussion of any re-profiling will only formally be tabled only if and after a major shift in Athens’ refusal to deliver anything of note towards a budget deal to date whatsoever.

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