Reports in the press of a German Finance Ministry document supposedly for internal use only critical of Greece’s Memorandum of Understanding agreement have raised concerns in markets that Berlin may at the last minute block a full agreement at today’s Eurogroup meeting, and instead force Greek Prime Minister Alexis Tsipras to reach for an interim 6 billion Euro bridge loan from the EFSM until Berlin’s final concerns (on IMF participation, privatization, etc.) are addressed to its satisfaction.
*** We would be shocked if that were to happen, and believe it HIGHLY UNLIKELY Germany will today delay the MoU approval process. ***
Three Reasons for Unlikely Delay
For one, in spite of all its criticism of the rushed MoU, the German Finance Ministry has this week for the first time publicly ceded that a debt re-profiling for Greece will be forthcoming – once the first review is complete – which is a grudging price essentially to pay to keep the IMF involved in the bailout program.
That message has been delivered not by hardline German Finance Minister Wolfgang Schaeuble, but by a deputy minister, but it has been reinforced nevertheless by some of Chancellor Angela Merkel’s key CDU allies in the Bundestag (see SGH 8/6/15, “Greece: On Track, Give or Take”). Schaeuble for his part has limited his comments to merely express optimism that he is confident of “a result” at today’s meeting. But that of course could mean either a bridge loan or a full MoU agreement.
Furthermore, while an official date has not yet been set, the Bundestag has indicated that, if needed, it can and will convene quickly to approve the MoU and the first disbursement before the August 20 deadline.
Last but not least, there is little or no political appetite among any of Germany’s other hardline creditor allies to drag negotiations even further, especially given the very public battles Tsipras is clearly now locked in with his own Parliament in passing what is already a highly controversial MoU, including numerous concessions snuck in under the buzzer at the last minute on highly politically sensitive “red lines” on raising the pensions retirement age and revising real estate bankruptcy laws.
And Even Then, No Death Knell
In the highly unlikely event Berlin does stick to a hard line in granting final approval of the MoU at today’s Eurogroup meeting and pushes the game yet once more into overtime, even that would ultimately still not, as we have long maintained, spell a death knell to the bailout negotiations by any stretch of the imagination.
What it would do would be to dramatically undermine Tsipras’s political position as he heads towards a confidence vote and – most likely – crucial new elections, creating even more political and implementation uncertainty than already exists.
Furthermore, it would certainly isolate Germany again from its Eurozone partners as happened with the shocked response that followed Schaeuble’s presentation of the Greek “holiday from the Euro” option in the July 12-13 Summit, and needlessly reignite tensions between domestic and European constituencies which Merkel has so painstakingly and deftly managed to defuse.
We would be floored if Merkel were to let that happen.