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26/09/2016

Germany pessimistic about Greek rescue

Euro & Finance

Germany pessimistic about Greek rescue

Wolfgang Schäuble [European Commission]

Germany’s finance minister said yesterday (15 April) that there was no prospect of the eurozone reaching a deal with Athens next week on economic reforms that would unlock bailout funds, potentially leaving Greece perilously short of money.

Both the Greek government and its creditors have said they need to reach at least an outline agreement at a 24 April meeting of eur zone finance ministers in Latvia’s capita,l Riga.

But Athens, which has signaled it may not have enough cash to keep up payments to international creditors in May, has yet to produce a program of reforms that is deemed acceptable.

Germany Finance Minister, Wolfgang Schäuble, told the Council on Foreign Relations in New York that no one expected a deal at the Riga meeting, or in the coming weeks.

“No one has a clue how we can reach agreement on an ambitious program,” he said, adding that Greece’s new leftist-led government had “destroyed” all the economic improvements achieved by Athens since 2011.

A political conservative, the minister appeared to suggest that the eurozone could cope with a Greek default, saying markets had “priced in” all possible outcomes to Greece’s debt woes and that there was no contagion to other eurozone sovereign borrowers.

>>Read: How we deal with Greece now will determine Europe’s political course

Standard & Poor’s decision to downgrade Greece’s credit rating to CCC+ with a negative outlook, citing the prolonged negotiations, suggested it sees default as increasingly likely.

In Brussels, European Commission President Jean-Claude Juncker, who has tried to mediate with Greek Prime Minister Alexis Tsipras, told a closed-door meeting of the EU executive that his patience with Athens was wearing very thin, and that there had been no progress in recent days, an EU official said.

But he said Juncker had insisted there should be no contingency planning for a possible Greek exit from the eurozone.

“A ‘Grexit’ is a taboo topic for Juncker,” the official said.

In Berlin, a Finance Ministry spokeswoman said eurozone countries could not realistically pay out new aid to Greece this month because of the complex process required.

Slovak Finance Minister Peter Kazimir echoed Schäuble’s gloom about the chances of a breakthrough next week.

“Given that we have lost a lot of time, I am skeptical,” Kazimir told reporters after a Slovak cabinet meeting.

Greek Prime Minister Alexis Tsipras, elected on a promise to end austerity, is balking at pension and labor market reforms to which his conservative predecessor had agreed.

EU sources say Brussels is pushing Athens towards more rapidly applicable measures to liberalize markets for products and services instead.

Athens is dangerously close to running out of cash, with its reserves expected to dip into negative territory after 20 April, a source familiar with the matter has previously said.

The government could get by for another couple of weeks by using one-off measures or trying to raid the last remaining cash reserves at state entities — a tactic it has been using in recent months.

But without a deal in Riga, Athens could be forced to choose between making 1.6 billion euros of wage and pension payments at the end of this month, or about 1 billion euros of debt payments due in May, mostly to the IMF.

World watching

Greek Finance Minister Yanis Varoufakis will be in Washington later this week for G20/IMF meetings, at which his ministry said he will meet both US President Barack Obama, and European Central Bank President Mario Draghi.

The German finance ministry spokeswoman said that, even after a ministerial agreement, Greece would have to pass new laws and its creditors would want to review progress.

“If people are under the impression that aid could be paid out in April, I think this is wrong,” she said.

>>Read: Many of Greece’s problems were aggravated by the EU

In the meantime, the ECB is keeping Greek banks afloat with emergency loans to cope with heavy deposit outflows and raised the ceiling for that lending to €73 billion on Tuesday.

Draghi said on Wednesday there was no date for ending it, adding that it was “entirely depending on the conditions that will be in place” after talks between Greece and its lenders.

Speculation has been rife in recent days that Tsipras may call a snap election if Greece does not secure outside help, something his government has strongly denied.

“There is no point in calling elections,” State Minister Alekos Flabouraris told Greek TV. “They took place two months ago, we received a specific mandate which we will serve. We do not need elections, I rule it out 100 percent,” he said.

Athens sold €812.5 million of three-month Treasury bills on Wednesday, successfully covering the entire amount it sought to raise in the second of two auctions this month that tested its ability to find funds.

European Commission Vice-President Valdis Dombrovskis told Reuters on Monday that Greece was not moving fast enough to draw up structural reforms and time was running short to prevent it running out of cash.

The head of the eurozone’s rescue fund, Klaus Regling, said in Washington that Greece could reach debt sustainability without having to impose another “haircut” on creditors, as it did in 2012 when private bondholders took heavy writedowns.

Background

On 20 March, the European Commission offered Greece funds to deal with what it called a humanitarian crisis, after Prime Minister Alexis Tsipras vowed to clarify bailout reform pledges demanded by creditors.

Following crisis talks between Tsipras and European leaders, EU Commission chief Jean-Claude Juncker said he was making available €2.0 billion in unused EU structural funds to Greece.

>> Read: Greece promises to deliver full reform list after three-hour 'mini summit'

Greece secured a four-month extension of its financial rescue on 24 February, when its eurozone partners approved an economic reform plan that backed down on key measures and promised that spending to alleviate social distress would not derail its budget.

>> Read: Eurozone approves Greek reform plan with reservations

Germany's rejection of an initial Greek request for a six-month loan extension forced Athens into a string of politically sensitive concessions, postponing or backing away from campaign promises to reverse austerity, scrap the bailout and end cooperation with the "troika" of EU, ECB and IMF inspectors, which are now called "the institutions".

>> Read: Greece, eurozone agree to four-month loan extension, avert crunch