Why Greece's spillover across euro area will probably be contained this time

Deadlock leaves Greece closer to default
AFP JUNE 26, 2015 12:00AM

Greece moves closer to default
Greek Prime Minister Alexis Tsipras in Brussels for talks on the Greece bailout Source: AP

Greek Prime Minister Alexis Tsipras and his country’s creditors have failed to reach a bailout deal at emergency talks, raising fresh fears that Athens will default on an IMF loan next week.

The differences remain so great despite two days of marathon talks that Greece and the lenders from the European Union and the International Monetary Fund were expected to present rival reform proposals to eurozone ­finance ministers in Brussels later last night.

“The Greeks have rather made steps backward,’’ Germany’s ­Finance Minister, Wolfgang Schaeuble, said.

“Positions are even further apart rather than narrowing. The decision lies exclusively with those responsible in Greece.’’

The latest gambit came after Prime Minister Alexis Tsipras met the lenders under pressure to seal a deal before facing the other ­EU leaders at last night’s summit.

European Commission president Jean-Claude Juncker said he was “tired to death” after talks with the leftist leader and the heads of the European Central Bank and International Monetary Fund on Wednesday and early yesterday.

The aim was to finalise a deal in time to have it approved by EU leaders before a June 30 payment deadline for a €1.5 billion ($2.2bn) IMF loan repayment.

But they produced no breakthrough in the five-month standoff between the anti-austerity Greek government and the creditors, who have refused to release €7.2bn in bailout funds unless Greece promises reforms.

“There will be two texts” at the eurogroup meeting of eurozone finance ministers, a Greek government source said. “It’s a sign of the big distance between Greece and its creditors.”

European stocks rose on early optimism about a deal but Asian stocks slid late yesterday over fears of the global economic fallout from a possible default by Greece.

The disagreements have centred on spending cuts, VAT and pensions, which Greece says it can ill afford after two punishing EU-IMF bailout programs since 2010 worth €240bn.

Talks have become increasingly acrimonious as the deadline looms and on Wednesday Greece withdrew some of its reform proposals, apparently for the first time since negotiations began.

Greek government sources said two were withdrawn from the list under pressure from Mr Tsipras’s left-wing Syriza party, including an unpopular increase in pensions contributions.

The Greek side is seeking to offset the impact of the changes with other measures, sources said.

Mr Tsipras was elected in January vowing to end five years of bailout austerity in Greece exacerbated by long-term recession and high unemployment.

He took a characteristically tough stance on Wednesday, lashing out at creditors just minutes before meeting Mr Juncker, IMF chief Christine Lagarde and European Central Bank boss Mario Draghi.

“This strange position maybe hides two things: either they do not want an agreement or they are serving specific interests in Greece,” Mr Tsipras said.

EU president Donald Tusk warned last week of the growing risk of a “chaotic, uncontrollable Grexident” — Greece crashing out of the euro and perhaps also the EU, which it joined in 1981.

The new plans submitted on Sunday by Greece aim to make 8bn euros in savings, mostly through new taxes on the wealthy and businesses, VAT increases and a cut in defence spending.

But in counter-proposals handed to Greece on Wednesday, creditors called for early retirement to be abolished and an ­increase in the retirement age from 62 to 67 by 2022, not 2025. Creditors are also sticking to ­demands for a 23 per cent value-added tax rate for restaurants, instead of the current 13 per cent.

AP

Talks on Greek debt deal to continue over weekend
GABRIELE STEINHAUSER THE WALL STREET JOURNAL JUNE 26, 2015 6:49AM

Greek PM Alexis Tsipras, left, shares a light moment with Italian counterpart Matteo Renzi and German Chancellor Angela Merkel. Source: AFP
A deal on new bailout funds for Greece has been put off until the weekend, as both Athens and its creditors bet that an impending payment deadline will bring them extra concessions.

“That’s it for today,” Finnish finance minister Alexander Stubb said in a Twitter message. “Institutions and Greece to continue work. Eurogroup (of finance ministers) back later, but not today.”

Greece has to transfer €1.54 billion ($2.23 billion) to the International Monetary Fund on June 30, the same day the eurozone portion of its €245 billion rescue program expires. Without new financing from its creditors — the IMF, the European Central Bank and other eurozone governments — the government in Athens can’t afford that payment.

Although failure to pay the fund puts Greece technically in default to the IMF, credit-rating firms and European officials have indicated that it may not immediately leave Greece in default on other obligations.

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It nevertheless risks setting up a chain of events — including a run on its banks and broader market turmoil — that could make it difficult to stay in Europe’s currency union.

“We are entering uncharted waters here,” said Peter Kazimir, Slovakia’s finance minister, in a Twitter message.

Mr Kazimir and his counterparts from the other 18 eurozone countries cut short a crisis meeting in Brussels overnight (AEST) to give Greece and experts from the creditors’ side more time to agree on the budget cuts and policy overhauls linked to new aid transfers.

During the meeting, ministers also discussed how a new financing deal for Greece would work — once and if there is an agreement on the related measures.

Such a deal would see the eurozone portion of the bailout extended until the end of November, according to a document handed to ministers that has been seen by The Wall Street Journal and officials familiar with the talks.

According to the document, the Greek government would need a total of €15.3 billion to avoid default until then — an amount that could be covered with funds left over from the exiting bailout. To make the IMF payment on June 30, Athens would get €1.8 billion in profits from Greek government bonds owned by European central banks. In July, it would receive €4 billion from the eurozone bailout fund, followed by an extra €4.7 billion in August.

Crucially, the first payout from the IMF wouldn’t come until October. That could raise problems in several countries, including Germany, where parliaments have linked their own rescue loans to those from the IMF.

Differences on the measures linked to new aid have been narrowing in recent weeks, but there are still significant gaps on how best to get Greece’s debt load under control and get its economy growing again. The left-wing government of Prime Minister Alexis Tsipras has been counting on raising new revenues — for instance from corporate taxes and employers’ social-security contributions. The creditors, on the other hand, are pushing for cuts on pensions and military spending and increases in sales taxes.

The finance ministers, who had been handed two different proposals last night — one from Greece and one from the creditors’ experts — said they would reconvene tomorrow, in the hope of sealing a final financing deal.

“Work will continue now for 48 hours,” said Luxembourg Finance Minister Pierre Gramegna. “The most recent proposals are being checked.”

The renewed delay, along with a refusal from European leaders to get embroiled in the bailout talks, pushes the two sides into an ever-tighter standoff. Both Greece and the creditors were counting on the other side giving in on demands it has so far rejected.

“I think that European history is full of disagreements, negotiations and at the end, compromises,” said Mr Tsipras. “So, after the comprehensive Greek proposals, I am confident that we will reach a compromise that will help the eurozone and Greece to overcome the crisis.”

But the delay tactics aren’t without risks. The IMF warned last night that it would immediately notify its board if Greek fails to pay it on June 30. That would leave Mr Tsipras and his government without the one-month “grace period” that the fund’s managing director, Christine Lagarde, can give wayward borrowers by not informing the board immediately.

“Given the relevance and visibility of this case … we expect the managing director would notify the board promptly,” said IMF spokesman Gerry Rice.

Being in payment arrears to the IMF wouldn’t have any automatic consequences for Greece’s standing with other borrowers. But it may unnerve global investors that have so far taken the impasse without the jitters that have accompanied other iterations of the Greek crisis.

The Stoxx Europe 600 closed down 0.2 per cent, after flitting between losses and gains.

Beyond the message to Greece, Mr Rice’s comments show growing cracks among the creditors themselves. The IMF has been much more critical of Athens’ reliance on taxes to plug holes in its budget, saying they will weigh on the economy. Fund officials have told eurozone governments that they would have to compensate for any growth shortfalls by reducing Greece’s debt. That, in turn, is anathema to hawkish governments such as Germany, the Netherlands or Finland.

During last night’s meeting, Germany’s Wolfgang Schäuble and a few other ministers complained that the institutions negotiating with Greece had already strayed too far from the original bailout deal, according to officials familiar with the talks. Other ministers, such as Michel Sapin of France, meanwhile, are more open to given Greece assurances now that its debt load will be lightened in the future, according to a person familiar with the negotiations.

The uncertainty over their country’s financial future has unnerved many Greeks. They have withdrawn billions of euros in deposits in recent weeks, stretching emergency funding for Greek banks from the Greek central bank to its limit. Last night, the ECB left this emergency funding unchanged, at nearly €89 billion, a person familiar with the matter said.

German Bundesbank President Jens Weidmann sharply criticised the mounting reliance of Greek banks on emergency central bank loans, suggesting that patience is wearing thin among the ECB’s conservative wing over the standoff between Athens and its creditors.

Mr Weidmann said that emergency liquidity assistance in Greece “has been provided for a protracted period and has become the banks’ only source of funding.” He said this “casts doubt on their financial solidity [and] the latter is especially undermined by Greek policy decisions that have sparked capital flight and large-scale cash withdrawals.”

With VIKTORIA DENDRINOU

Wall Street Journal

merkel tells tsipras to "shut up" during dinner.

They want to get rid of him kill him politically.

I see the latest proposal by tsipras is a good idea raise taxes but keep people employed at least slowly can work the way out.

but if follow ecb force layoffs eventually you will end up with a whole bunch of people who are broke and can't pay taxes. How to escape this debt?

If you are unemployed and there are no jobs around how will you live or eat or feed family? Forced debt - borrow some more loh plenty loan sharks are around to assist you, so whole life become dependent to the state for welfare and a slave to a debt you can never hope to repay.

http://www.telegraph.co.uk/finance/econo...lapse.html

Actually layoffs could be a good way of streamlining the gov admin sector which usually have lots of fat employees sitting around talking and not doing much. So long as essential services are kept, country can still run. Whatever short term drop in consumer spending will be more than compensated as economy will pick up with the restored confidence from foreign investment coming in and creating more jobs.

The resulting gov and commercial sectors will end up more lean and efficient.

Easy money always makes people lazy and greedy for more.

sent from my Galaxy Tab S

I see is all loan shark think alike, once they know you can pay they don't want you to have a chance to get out of the debt they want you as their debt slave boy forever.

A friend of mine his father borrowed around 3k from moneylender when a few payment was missed the debt spiral into nearly 50k of course old man couldn't pay so the harassment started late night angry callers, house door window as well as neighbors unit splashed with red paint. So my friend decided to stop all this he agreed to pay off around 50k but you know what happen? A few weeks later they came back again and claim some outstanding loans still not pay off so please pay it again, of course my friend refused. So they started harassment again, so now that outstanding has probably spiral into over 100k.

So my friend now know this a scam refuse to pay, you acknowledge or entertain them a even little bit they will harass you more.

Yes my friend father can consider a bad borrower but the lenders are also loan sharks already made killing of 1600% yet want more. So why I say all loan shark think alike.

(27-06-2015, 02:41 PM)sgd Wrote: I see is all loan shark think alike, once they know you can pay they don't want you to have a chance to get out of the debt they want you as their debt slave boy forever.

A friend of mine his father borrowed around 3k from moneylender when a few payment was missed the debt spiral into nearly 50k of course old man couldn't pay so the harassment started late night angry callers, house door window as well as neighbors unit splashed with red paint. So my friend decided to stop all this he agreed to pay off around 50k but you know what happen? A few weeks later they came back again and claim some outstanding loans still not pay off so please pay it again, of course my friend refused. So they started harassment again, so now that outstanding has probably spiral into over 100k.

So my friend now know this a scam refuse to pay, you acknowledge or entertain them a even little bit they will harass you more.

Yes my friend father can consider a bad borrower but the lenders are also loan sharks already made killing of 1600% yet want more. So why I say all loan shark think alike.

sad to hear that such a thing is happening to someone you know. Loansharks like to prey on the ignorant and elderly, unfortunately some still survived in our society today.

The greek loansharks would probably be part of their mafia

Still part of a script as Eurozone leaders have been planning for this day since the crisis 1st erupted...

Greece's problems are well contained... the wealthy have been given ample time to stash their wealth away, even the messes have been taking advantage of the window to keep Euros under the pillow or in biscuit tins.

It will be a hit to the risk takers and that is about all and $ can be printed... its not as if we haven't seen it since the start of QE.

Once the new domestic system in Greece stabilises, all this hidden money will be back to vulture...

The sooner this episode is over, the sooner global financial mkts will have less noise - Eurozone in particular...

http://www.cnbc.com/id/102791542

IMF's Lagarde: Everything depends on next few days, Greece still euro zone member
Phillip Tutt | Everett Rosenfeld
4 Hours Ago
CNBC.com

People wait outside a closed branch of Piraeus Bank in Athens, Greece June 27, 2015. The specific branch opens at 10:30 AM local time on Saturdays but it remained closed while dozens of people lined outside to withdrew cash.
Yannis Behrakis | Reuters
People wait outside a closed branch of Piraeus Bank in Athens, Greece June 27, 2015. The specific branch opens at 10:30 AM local time on Saturdays but it remained closed while dozens of people lined outside to withdrew cash.
Talks fell apart between the Greek government and its creditors, and European officials said Athens' bailout program will expire on Tuesday.

Euro zone finance ministers met to try and thrash out a reforms-for-rescue deal for Greece after the country's prime minister threw a curveball of a referendum on the deal late Friday night. During Saturday's meeting, the finance ministers rejected Greece's request for a one-month bailout extension, meaning that Athens could soon face very serious economic issues.

The marathon talks couldn't be more high stakes. The threat of a liquidity crisis sent countless numbers of Greek citizens scrambling to withdraw funds, prompting massive cash shortages at automated teller machines across the Hellenic Republic on Saturday.

More than a third of the country's ATMs ran out of cash, banking sources told Reuters, amid widespread fears Greece would soon be ejected from the 12-nations that use the euro currency.

"It's not a question to see what might happen on Monday. In terms of a crisis (for Greece), the crisis has commenced," Irish Finance Minister Michael Noonan said after the day's second meeting.
Greece is due to pay the International Monetary Fund 1.5 billion euros Monday and without a deal this weekend risks missing that payment. Christine Lagarde, that organization's managing director, sat down with CNBC to discuss the situation (her comments below).

Dai ji dua diao.

Next week something big will happen in the markets come Monday noon when Europe opens.

There is no big deal as global mkts have been anticipating it for years...

The big deal lies with the global media sensationalising the whole episode.

Get ready for the mkts to rally.

(28-06-2015, 11:25 AM)mulyc Wrote: Dai ji dua diao.

Next week something big will happen in the markets come Monday noon when Europe opens.

Policy makers are unperturbed it seems.... they are quite confident... will be business as usual...

Q: Many finance ministers have taken great effort to point out in the last few days, coming into these Eurogroup meetings that there won't be a contagion effect. That financially, countries will be protected. What about economic, political contagion at this stage. Are you concerned about the reaction in the financial markets when they re-open tomorrow night and on Monday?

A: You know, I have been around for a long time during those moments of crisis. And certainly the euro area is in a completely different position from where it was back in 2011. Let alone 2028. Whether it's the ESM, the ESFS - the tool box available and validated and endorsed by the court… the European Court of Justice in particular… by the ECB… and the tools and defenses that can be put to good use which were not available in 2011. So that issue of contagion has a completely different dimension. As far as the neighboring countries are concerned, clearly, there has been a debate. There has been precautions taken in vicinity countries.

Q: So you are far less concerned than you were?

A: In 2011? As I said the situation is entirely different. We are in a different paradigm for the euro area.


http://www.cnbc.com/id/102793417

IMF's Lagarde on Greece: 'Progress', but next few days are crucial
7 Hours Ago
CNBC.com

International Monetary Fund (IMF) Managing Director Christine Lagarde and German Bundesbank Governor Jens Weidmann chat prior to the group photo of finance ministers, central bank governors, and global financial institution heads during a meeting of finance ministers of the G7 group of nations on May 28, 2015 in Dresden, Germany. The G7 finance ministers are meeting ahead of the upcoming G7 summit at Schloss Elmau in June. (Photo by Sean Gallup/Getty
Getty Images
International Monetary Fund (IMF) Managing Director Christine Lagarde and German Bundesbank Governor Jens Weidmann chat prior to the group photo of finance ministers, central bank governors, and global financial institution heads during a meeting of finance ministers of the G7 group of nations on May 28, 2015 in Dresden, Germany. The G7 finance ministers are meeting ahead of the upcoming G7 summit at Schloss Elmau in June. (Photo by Sean Gallup/Getty
Here's a loosely edited transcript of CNBC's interview with IMF Managing Director Christine Lagarde:

Q: Can I just clarify what we've heard today first. There's going to be no extension to the proposals on the table, so after Tuesday, effectively they die. So Alexis Tsipras has three days here to u-turn?

A: First of all, I would to remind everybody that Greece is under a program with the IMF until March 2016. So what has been discussed today are the European financial arrangements which are due to expire after a previous extension on June 30th. And of course everything is going to depend on the developments in the next few days. But as far as we are concerned, Greece is a member of the euro zone. When they are prepared to talk, and to continue negotiations, we stand ready to do that. we have constantly in the last few days showed a lot of willingness to progress, flexibility in what they can adjust to. And we stand ready to continue to doing that.

Q: Are you willing to provide even more flexibility though even from today, because they are saying already, they are going to meet an ultimatum with an ultimatum of their own. Which is effectively what they're saying that they've done.

A: You know, this ultimatum discussion is a bit over the top because there has been a preliminary position, successive iteration, modifications, movements, and so on and so forth… so I think there has been a lot of progress and we are a point where it has been significantly diluted compared with the previous arrangements. Just to give you an example, the fiscal targets have been significantly reduced. The structural reforms that are so necessary for the Greek economy to transform itself have been reduced as well, focusing on the principle ones… the ones that are more adjusted to the political and economic new situation in Greece. At the same time, we have always advocated a balanced deal. It has to include all the necessary reforms, growth friendly fiscal consolidation on the part of Greece. But also on the other side, a contribution to the financing in the next few months. And assurance, going forward, that they will be sustainable debt… which means most likely, a debt operation. And it's really that sort of balanced approached that needs to happen.

Q: Has your stance been made harder because of euro zone leaders won't agree to looking at further debt re-profiling or debt negotiation at this point?

A: This issue of financing and debt has always been in the background of anything… because we always have to issue debt sustainability analysis.

Q: If we don't see further negotiation from the Greeks, would you agree that a route down towards Grexit would look pretty inevitable here?

A: Let's hope it can be avoided. But clearly the outcome and the way in which the referendum… tonight or tomorrow, in the course of the day will happen… will be critical. As I said, if and when the Greek authorities are ready to resume talks, we certainly stand ready to help.

Q: There's confusion over what they can hold a referendum on now—because the programs, the proposals don't exist after Tuesday. Is that right? Because then it effectively becomes a euro membership referendum?

A: It is a fact that European financial arrangement runs until June 30. And that any development… unless there is a new arrangement, or an extension, will no longer legally exist.

Q: There are reports of panic, of people taking money out of ATMs already… of ATMs being empty particularly around the center of Athens. Do you think capital controls, or at least a bank holiday until this proposed referendum is necessary at this stage?

A: This is a matter which should be discussed between the Greek authorities and the European Central Bank. It's not for us to make decisions in that respect. And I'm sure they will be holding talks to address the situation and I'm sure they have the tools to respond.

Q: We shouldn't under estimate the dangers of these next few days?

A: Any moment of negotiations break up and eventually resumption afterwards are always difficult. And it is a difficult moment for sure.

Q: Many finance ministers have taken great effort to point out in the last few days, coming into these Eurogroup meetings that there won't be a contagion effect. That financially, countries will be protected. What about economic, political contagion at this stage. Are you concerned about the reaction in the financial markets when they re-open tomorrow night and on Monday?

A: You know, I have been around for a long time during those moments of crisis. And certainly the euro area is in a completely different position from where it was back in 2011. Let alone 2028. Whether it's the ESM, the ESFS - the tool box available and validated and endorsed by the court… the European Court of Justice in particular… by the ECB… and the tools and defenses that can be put to good use which were not available in 2011. So that issue of contagion has a completely different dimension. As far as the neighboring countries are concerned, clearly, there has been a debate. There has been precautions taken in vicinity countries.

Q: So you are far less concerned than you were?

A: In 2011? As I said the situation is entirely different. We are in a different paradigm for the euro area.

Q: Are you expecting to get paid, the money, on Tuesday?

A: Well, I certainly hope that the bundled payment due to the IMF on Tuesday night, at the latest, will be paid. If they were not paid on Tuesday night, then there is a series of procedures and notifications that I have to initiate. But technically, any country that does not pay on due date is in payment arrears vis-à-vis the Fund. And the consequences are that the Fund cannot disburse vis-à-vis that country until the arrears has been paid. Greece remains a member of the IMF. Greece benefits and alternate seat on the Board… and has access to technical assistance, receives surveyance and services but it cannot receive any payment until arrears has been paid.

Q: How quickly will you notify the board. The IMF mentioned the cross-default clauses that are contained within the current deal…

A: You know, everything in due course. For the moment, I hope that payment is made on Tuesday. And if that was not the case, I will call the board very very promptly.

Q: I want to ask you about the attacks that have been made by the Greek government indirectly, directly on the IMF. I quote, "the evil IMF". Are you the "evil" IMF in these negotiations?

A: You know we have tried everything we could to adjust, to demonstrate and implement flexibility as we are allowed to under our policies. We have always been united with the other two institutions - we are together. And our objective is clearly to restore the financial independence, the stability of Greece - to make sure that growth can start again. And that Greece can be sustainable from an economic and financial standpoint. As I've said, it is a balancing act. There has to be measures taken by Greece, there has to be support by the Europeans. And they come in sequence. Measures have to be taken, they have to be implemented. And that triggers a different attitude and a willingness to look at both financing and debt sustainability.

Q: You've, at times last year, asking for adults to be around the negotiating table. Do you hold the Greek government responsible for what seems to be a catastrophic failure in negotiations so far?

A: I'm sure that everyone will be pointing fingers. I have to say that this negotiation process has been very very laborious. Very cumbersome and very frustrating… with last minute documents tabled… and a very time consuming process where no one really knew what the Greek party wanted in terms of reforms and what the red lines were.

Q: A lot of people were saying the Greek government is putting the Syriza party before the Greek people. Would you agree with that?

A: I hope that's not the case for a government.

Q: Is this another situation where we will have European ministers, creditors, the Greek government effectively shifting the damage onto the Greek people again, because ultimately, they are going to suffer here, aren't they? If they aren't in a deal? If the government in the country's not in a deal.

A: In all the changes and the approach that we have taken in the negotiations, we've always said consistently that there had to be social safety net. We've always said that small pensions should be protected. And that's a line that we will continue to hold if negotiations resume. These protective measures have to be embedded in a program that is ambitious for Greece… that actually tackles the vested interest… that touches on the protected territories… that reviews who pays tax… and so on and so forth. And on that front, I would have hoped that this government is determined to adopt that approach.

Q: I want to ask one last question. The IMF… yourself personally have been criticized for being so involved in the Greek situation. For favoring Europe over the amount that's been lent. You've argued time and time again that you have other shareholders to consider. And other interests that has to be considered. Was it worth the economic and political capital that has been expanded here, do you think?

A: Europe and the Eurogroup represent a significant size of the global economy. From all the discussions that I've had around the world – in China, Latin America, and the Middle East, all questions, often, at the beginning of meetings that I've had with leaders, heads of states, pointed to the euro area. Is growth really picking up? Is such and such country really doing okay? Is Greece a country that is going to be coming out of that? So it's hardly surprising that we all spend quite a bit of time and energy… and creativity if we can, within our rules, in order to help that situation. But I'm going to have to go back to Washington promptly because as you've said, there are other members and we have other programs as well. We stand ready to help.