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25/09/2016

Greece’s third bailout request suffers blow at Eurogroup meeting

Euro & Finance

Greece’s third bailout request suffers blow at Eurogroup meeting

Alexander Stubb [World Trade Organization/Flikcr]

Greece’s efforts to restart negotiations with its creditors for a third bailout programme suffered a blow at a Eurogroup meeting on Saturday (11 July), as it became clear that Germany and Finland, among others, were opposing the idea.

Greek Prime Minister Alexis Tsipras had sought a three-year loan of €53.5 billion in exchange for an economic reform programme voted by the Hellenic Parliament Friday evening. According to the Greek newspaper Khatimerini, Greece would need closer €80-85 billion for 2015-18. 

But Finland’s parliament has decided it will not accept any new bailout deal for Greece, piling on pressure as eurozone finance ministers were locked in tortuous talks to stop the debt-ridden country from abandoning the euro. All eurozone governments need to be given a mandate before negotiations can start. 

Finnish lawmakers’ decision to push for a so-called “Grexit” came after the eurosceptic Finns Party, the second-largest in parliament, threatened to bring down the government if it backed another rescue deal for Greece, public broadcaster Yle reported citing sources close to the talks.

The Finnish government could now collapse or face the Finns Party leaving the government coalition as a result, an EU source told EurActiv. A government committee voted ‘No’ Saturday morning to further financial assistance for Greece. 

However, under the treaty for bailout programmes, 85% of capital holders could give the green light so Greece could still get its third programme without the backing of Finland. 

Finland’s Finance Minister Alexander Stubb, who is otherwise known to be very talkative, did not say a word when he arrived at the Eurogroup meeting.

Schäuble suggests temporary Grexit

Meanwhile, the Frankfurter Allgemeine reported that Germany’s Finance Minister Wolfgang Schäuble proposed a plan for Greece to leave the euro for at least five years, while selling off assets worth €50 billion to get its debt under control, and receive humanitarian assistance from the EU at the same time.

This plan should have been agreed with both German Chancellor Angela Merkel and Vice-Chancellor Sigmar Gabriel. A one-page document raising the issue was apparently sent to the other eurozone finance ministries. Finnish television is reporting that many eurozone members, including Finland, are not opposed to the idea.

Ahead of the Eurogroup meeting, Schäuble told reporters that negotiations on a third bailout for Greece were going to be “extremely difficult” and that the Greek government had destroyed any hope for a credible solution in the past months. 

However, according to EU officials, kicking Greece out of the eurozone for more than five years was not proposed by Schäuble or any other finance minister at the Eurogroup meeting.  

Lack of trust

An EU official told EurActiv that Eurogroup ministers had mainly discussed what reforms Greece could implement immidiately in order to receive financial support. 

“The ministers want details upfront, especially related to labour market reforms,” the source said.

When the eurozone finance ministers arrived for the Eurogroup meeting, it was already clear they were sceptical about reaching a deal with Greece over a new bailout programme.

The main problem was not so much the Greek reform proposals as such, but the lack of trust in the Greek government’s willingness to implement them.

Malta’s Edward Scicluna said the lack of trust undermined the new austerity proposals by Greek Finance Minister Euclid Tsakalotos. The outcome of the Greek referendum on 5 July clearly did not give a mandate to this kind of programme, he said.

Ireland’s Michael Noonan said he wanted more details and expressed frustration that the Greek proposal was silent when it comes to the needs of its banking sector. Noonan also said that it would be a good signal if Greece’s government could already start implementing some measures next week to restore trust. 

One of the hardliners towards Greece, Slovakia’s Peter Kažimír, stressed that the main problem with Greece is the longterm sustainability of the country’s debt. He added that the Greek promises were only good enough for a second bailout programme, but not enough for a third.

A neutral statement by Eurogroup was expected by EU officials, saying that Greece needs to implement reform measures over the next two week to guarantee continued negotiations. In the end the Eurgroup split up without any press conference. 

More talks will continue on Sunday (12 July). First, another Eurogroup will resume around 11 am, followed by a eurozone summit.

Bridging loan

According to a high-ranking official at the centrist Potami party, there won’t be a definitive deal between Athens and its international lenders but only an interim agreement, with a “bridging loan” to keep Athens afloat until a final deal is reached in September.

Speaking to EurActiv Greece, the same source, who is close to the talks, said the so-called bridging loan would amount to about 6-7 billion euros in order to save Athens from an immediate liquidity crunch.

A general framework for reforms without further detail or individual price tag would accompany the bridging loan until a final and comprehensive agreement is reached by the end of September.

This step-by-step approach would chiefly aim at bridging the communication gap and the lack of confidence between Athens and its international lenders.

Many EU countries believe Athens will not be able implement the promised reforms, especially after yesterday’s vote in the Greek parliament, which put into question the stability of the Syriza-led government. 

EurActiv Greece first reported last week (7 July) that S&D leader, Gianni Pittella, intended to submit such a proposal, something that was confirmed during the plenary session in Strasbourg (8 July).

Asked by EurActiv Greece, a government official did not confirm that this proposal was actually on the table.

Background

Greek Prime Minister Alexis Tsipras won backing from lawmakers on Saturday (11 July) for painful reform proposals aimed at obtaining a new international bailout, but is now facing a rebellion in his own party that could threaten his majority in parliament.

The measures, which received an initial nod from European Union and International Monetary Fund officials before a meeting of eurozone finance ministers later on Saturday, were passed with the support of pro-European opposition parties.

Timeline

  • 12 July: Eurozone and Council summit.