NEGOTIATION talks between Greece and Europe appear finally to be progressing as Germany put a deal on the table which Athens’ leaders might be able to accept.
Germany’s negotiators may now be willing to accept just one large reform from Greece – which has been in financial crisis since 2009 – to allow a further aid loan to the country.
EU Economic Affairs Commissioner Pierre Moscovici said: “I really like Greek tragedy, but I think now we really have to move on to a happy ending”.
Moscovici said yesterday that bailout negotiations between Greece and Europe have now moved forward to the extent that “we’re now ready for landing”.
German Chancellor Angela Merkel said that Greece has now committed to work intensively with international creditors to revolve outstanding issues delaying its access to bailout loans.
Merkel said that during overnight talks with Greek Prime Minister Alexis Tsipras a clear consensus emerged that “Greece will now work emphatically and at full steam with the three institutions [European Commission, the International Monetary Fund and the European Central Bank] in coming days to try to clear up all the outstanding issues”.
She said that she had “hope that the necessary progress can now be made” and emphasised that “each day (in negotiation talks) counts”.
International creditors have said that Greece must improve an offer on the reforms that it would introduce in exchange for the bailout loans worth €7.2 billion it needs to repay debt payments that are due at the end of this month.
During early trading, the Athens stock exchange was up 5.5 per cent due to hope of an impending deal between Greece and Europe. European markets were up too, with the Euro Stoxx 50 index gaining 0.7 per cent.
Tsipras plans to meet with Jean-Claude Juncker, the head of the European Union’s Executive Commission, the organisation which is helping to supervise Greece’s bailout programme.
After Tsipras’ talks overnight with Merkel, Juncker and the French President, Francois Hollande, the Greek premier said: “We decided to intensify the effort to bridge the remaining differences”.
The slow progress in negotiations in recent weeks has raised fears Greece could default on its debt and drop out of the euro – or “Grexit”, as it has been dubbed – in a move that would create enormous uncertainty for the future of Europe and its global markets.
Mounting even more pressure on Athens, Standard & Poor’s in New York decreased Greece’s credit rating by one notch on Wednesday, saying they believe the country will default on its commercial debt within just one year if a deal can’t be made.
Another ratings agency, Moody’s, said that while Greece’s financial problems were mounting, there appeared to be little impact on the markets of other eurozone states, even the economically weaker ones, as a result of Greece’s poor credit rating.
Finance ministers from the 19 nations using the euro currency will meet in Luxembourg next Thursday, less than two weeks before Greece’s bailout programme expires and it has a large debt repayment due.
WILL WE SEE GREXIT?
Prof Dimitrios Kousenidis of Aristotle University of Thessaloniki said: “If there’s no deal, Grexit is inevitable. There has to be a deal”.
Greece’s future as part of the eurozone is so uncertain that UK bookmaker William Hill stopped taking bets on the chances of a Grexit.
As the deadline for Greece’s debt repayments nears, the rhetoric of both Greece and Europe has become heated and the markets more unstable.
Neither Greece nor Europe necessarily want a Grexit but with the EU leaders demanding major pension and labour reform and a Syriza-led government elected after a surge in popularity of the anti-austerity movement, there is little to no room for compromise.
Most traders see some sort of deal as the most likely outcome of negotiations with only one third of European investors believing that Greece will leave the eurozone completely. Some reports suggest that European officials are even prepared to extend the Eurozone part of the bailout to March 2016 which would give Greece more time for a reform deal to be agreed and synchronise the loans with the IMF’s bailout timetable.
A Grexit may appear unlikely but even without an arrangement with Greece’s international creditors, there could be a deal struck that maintains the eurozone’s lifeline to Athens. This type of deal would not necessarily mean forced default or Grexit.
Some economists believe that potentially the best option for Greece would be to pursue a “managed default” rather than an outright Grexit.
This arrangement would mean a less rigid approach and longer terms on repaying Greece’s debt on its eurozone loans. However, this could also mean Greece remaining in the eurozone with strict capital controls which would stop money from leaving the country.
ECB vice-president Vitor Constancio said in April that even if Greece defaulted on its debt, there would be no legislation that would insist upon its expulsion from the eurozone.
Constancio said that just because the state defaulted, if the banks remained solvent then there were “no automatic implications” for the banks.
Another possible plan for Greece’s future is that if the government runs out of funds, it could create a parallel currency to the euro and pay civil servants with IOUs rather than cash. The risk of implementing this approach would be that such IOUs would trade at a discount to genuine euros, which would quickly vanish from Greek banks.
A TIMELINE FOR GREECE
Greece is due to make a €312m loan repayment to the IMF today followed by another repayment of €573m euros by next Tuesday.
A Eurogroup Meeting will be held in Luxembourg on June 18 to negotiate a deal between Greece and Europe followed by another loan repayment of €343m to the IMF due the next day.
On June 19, Greece also owe a repayment of €85m to the European Central Bank for bonds purchased by the bank. There will also be a meeting of the EU finance ministers on this day to discuss Greece’s future in the eurozone.
June 25 marks the EU leaders’ meeting at the Summit in Brussels at which negotiations will continue.
Greece is also due to repay €1.5 billion of wage and pension bills by the end of the month.
June 30 is also an important day for Greece because this is when the current bailout deal expires and Greece must also make all its IMF repayments by this date or it will be in arrears to the Fund.
Greece’s mountain of debt currently stands at €320bn, €240bn of which has been bailed out by Europe. At the moment, Greece owes €56bn to Germany and the country’s debt-to-GDP ratio stands at 177 per cent, which is a 25 per cent decrease in GDP since 2010.
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