A planned meeting today between the Greek Prime Minister Alexis Tsipras, Francois Hollande and Angela Merkel on the margins of the EU summit in Riga is expected to be decisive for the future of the negotiations over the future of the country's financing.
Time is rapidly running out with Greek officials having declared that the country does not have enough money to make a June 5th payment due to the IMF. While the Greek government has made numerous concessions, it is resisting lender demands over labour deregulation and additional pension cuts.
Tsipras is expected to push for a ‘mini deal’ that would effectively allow for some funds to be released over the next few months to avoid a Greek default in the summer while kicking the can down the road with regards to the more difficult issues. It would see the partial release of the remaining 7.2 billion euros of the Greek bailout program, based on the progress made in the Brussels Group technical talks in agreeing on reforms. The tricky issues of labour and pension reform would be deferred until the autumn.
The prime minister’s goal is to link such an agreement with a pledge on the part of the lenders to examine in the future the issue of a potential Greek debt restructuring. That would help him sell such a deal to hardliners at home, however that may prove to be a tall order given that in many European capitals discussion of a potential reduction of Greece’s debt obligations is strictly taboo.
In an article today the German newspaper Sueddeutsche Zeitung has for the first time put forward a scenario that would see a new extension of the current loan agreement until the autumn.
According to the exclusive report by the paper’s Brussels correspondents, Europe is seriously assessing the possibility of extending Greece’s current financial assistance program - which is currently due to expire on June 30th - until sometime in the autumn, with the relevant decision being taken before the G7 summit on 7-8th of June.
The paper reports that approximately 4 billion euros could be disbursed from Europe (with the IMF not releasing its portion of the bailout), with the Greek government committing in return to completing a portion of the reforms outlined in the Memorandum.
Financial Times: Default is also on the able: the 2 scenarios
At the same time the Financial Times is reporting that a potential failure in the negotiations remains a very real possibility together with a Greek exit from the Eurozone.
“The basic scenario remains that Greece and its international creditors will reach an agreement,” the paper writes, citing a report by Reinhard Cluse an economist with UBS. “Despite that, the danger of a failure and a Grexit must not be underestimated,” given that, “the fiscal situation of the government remains exceptionally opaque, something which does not allow the precise determination of when exactly Athens will be forced to default on its obligations.”
According to the article, there are two basic scenarios in the event of an ‘accident’:
A default on the IMF loans which “would be politically damaging as, indirectly, Greece would be refusing to repay some of the poorest countries in the world which contribute to the institution’s coffers. As such it is considered less risky in general terms than a default on the ECB.”
A default on the ECB’s loans which is considered, “the less reliable choice. The Greek banking system relies on the emergency liquidity assistance from the central bank and whatever decision turns off the supply of liquidity would result in the Greek banks unable to meet their obligations.
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