Greece: Another Big Picture Update And The Latest Calendar Of Events
Confused
by the whirlwind of conflicting facts, not to mention outright lies,
leaks and rumors, surrounding the negotiations of what will either be
the third Greek bailout of its first, and final, Greek exit from the
Eurozone? The following summary should answer most questions.
From DB's George Saravelos
The Emergency Eurogroup on Greece concluded late Wednesday evening with little progress being made.
On the positive side, expectations were very low – all sides had
suggested that no agreement should be expected today. On the negative
side, it appears that the meeting concluded with the prospect that a
joint Greece – Eurogroup statement could be signed by both sides. However,
agreement on the phrasing of this statement broke down, with the Greek
side ultimately rejecting the language as equivalent to an extension of
the existing program – something which the prime minister explicitly
ruled out in the Greek parliament a few days ago.
Semantics
may be playing a role here, as the Greek side would clearly prefer a
re-branded “bridge program” that may be more acceptable domestically.
Substance cannot however be overlooked: the Greek prime minister has
explicitly distinguished between a legal extension of the “loan
agreement” (which the government desires and relates to funding
disbursement) and a rejection of an extension of the “program”, which
includes all the policy conditionality attached to financial
assistance. Ultimately,
the key difference between the two sides is that Greece doesn’t want to
commit to the policy conditionality specified under the existing
program, while the European side is requesting the opposite.
Irrespective
of today’s outcome, we now have a little more visibility around how the
debate will evolve into Monday’s Eurogroup meeting: the European side
is offering a technical extension of the existing program (rather than
our initial expectation of a 3rdrd ESM program), with the Greek side
desiring maximum flexibility and the least amount of up-front
commitments attached to completing the program review.
Our
baseline remains that an agreement to move forward should be
achievable. After all, this will only involve a commonly agreed written
statement by both sides that marks the first step in a three-part
process:
- Step 1 consists of agreeing on a negotiating framework around which talks can begin (“the program extension”).
- Step 2 will then involve the actual negotiation over the fiscal path, structural reforms and debt sustainability (“the policy conditionality around the program”).
- Step 3 then requires the approval of any program conditionality by the Greek parliament before any formal disbursements to Greece are made.
Given
the large distance separating the two sides, we view the successful
completion of each of the three steps as a close call. Agreement at the
Eurogroup on Monday will allow substantive negotiations to start, but
any additional interim funding to Greece via increased t-bill issuance
(if at all) is unlikely to be approved until progress on talks has been
achieved. A continuation of the deadlock on Monday will immediately
shift focus to Wednesday’s bi-weekly ECB review of the ELA limits of
Greek banks: in the event of failure, we would expect the ECB to become
more explicit on the timing of when ELA funding would be withdrawn or
capped.
Ultimately,
the alternative of ELA withdrawal and eventual capital controls for
Greece is worse for all sides involved. But whether progress can be
achieved under very pressing deadlines and large differences of opinion
on the underlying policy path between the two sides remains to be seen.
Updated calendar
- Thursday February 12th – European Council of EU Leaders, Tsipras likely to meet Merkel on sidelines
- Sunday February 15th – Voting for new Greek President begins, EC Commissioner Avramopoulos most likely candidate, originating from New Democracy. Likely completed by second round on the following day requiring 151 MP majority
- Monday February 16th – Eurogroup
- Wednesday February 18th - Bi-weekly ELA review
- Tuesday February 24th – 595mio EUR of bond interest/principal due
- Saturday February 28th – Current EFSF program expires
- 6th March – 297mio EUR IMF repayment due / 1.2bn EUR t-bill matures
- 13th March – 334mio EUR IMF repayment due / 1.6bn EUR t-bill matures
- 16th March – 556mio EUR IMF repayment due
- 20th March – 334mio EUR IMF repayment due / 111mio EUR bond interest/principal due / 1.6bn EUR t- bill matures
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