Saturday 27 June 2015

Greece to hold a referendum

Greece to hold national referendum on debt deal

26 June, 2015

The Greek PM is seeking to hold a national referendum on the conditions of the debt deal with the country’s international creditors, local media reports.

The referendum will be held on July 5, a few days past the June 30 deadline, Tsipras announced.

These proposals, which clearly violate the European rules and the basic rights to work, equality and dignity show that the purpose of some of the partners and institutions was not a viable agreement for all parties, but possibly the humiliation of an entire people,” Greek Prime Minister Alexis Tsipras said in a televised address to the nation, as cited by Reuters.


Greece Invokes Nuclear Option: TsiprasCalls For Referendum

Update: Greek PM Alexis Tsipras has announced a referendum in a televised speech to the nation after another day of fractious negotiations with creditors closed without a deal.

The dramatic move comes after Athens rejected a proposal from the troika aimed at delivering some €16 billion in aid to Greece as part of an extension of the country's second bailout program.
Protothema now says the Greek parliament will meet on Saturday and a referendum will be called as early as next week. Whether this is simply a last minute attempt to put pressure on EU finance ministers ahead of Saturday's Eurogroup meeting remains to be seen, but one thing is for sure: Tsipras is playing a dangerous game with the ECB ahead of a difficult week that could very well see the imposition of capital controls.
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????? ???? (@protothema) June 26, 2015

More from Kathimerini:

The government is considering a referendum on the substance of the agreement, according to recent reports, during the enlarged meeting taking place from Friday night at the Maximos Mansion. The referendum is expected to be held next Sunday, while the prime minister has already informed the political leaders. The prime minister after returning from Brussels convened the extraordinary Governing Council at the Maximos Mansion, which after 23:00 turned into cabinet by attendance of ministers and party executives to discuss the latest developments and next steps in view of tomorrow's Eurogroup.


Protothema is reporting that Tsipras has confided in a fellow EU official that if the country's creditors insist on sticking to pension and VAT red lines and if Friday's bailout extension proposal (which the Greek government apparently views as a patronizing stopgap) is the troika's final offer, he is prepared to call for snap elections.

Via Protothema (Google translated):

The dramatic developments of the last few hours, following the government's move to reject the proposal of the creditors may conceal preparation for use of the popular verdict, a decision which is expected to be finalized in the next few hours if the lenders do not move from its rigid positions. According secure information, a few hours ago he Prime Minister Alexis Tsipras European leader confided in Eurozone member country adjacent friendly in Greece that the data are up to this moment is ready even to call early elections. 
This revelation of thought by the Greek prime minister to the foreign leader can be interpreted in two ways: Either Mr. Tsipras is ready "plan B" if tomorrow the negotiation fails or leaked deliberately in order to exert indirect pressure on lenders to mitigate their requirements. Upon completion of the meeting Mr. Tsipras with Angela Merkel and Francois Hollande, the Greek side revealed that the Prime Minister pointed out to the leaders of Germany and France that does not understand why the institutions insist on so hard measures. The prime minister insisted his decision to reject the proposal of the creditors for a five-month extension of the existing agreement with a funding of 15.5 billion euros.

"The proposal does not cover us, because the financial part of barely meets the needs for payment of installments to the lenders, not help anywhere else the economy," emphasized a close associate of Alexis Tsipras and adds: "We will not accept the proposal, as we said, we were waiting to bring us another proposal tomorrow."

Greece has rejected creditors' bailout extension proposal.
#Greece gov't rejects institutions' proposal for programme extension & funding of €15.5 bln (via @amna_news#ec #ecb #imf #eurogroup
Manos Giakoumis (@ManosGiakoumis) June 26, 2015

*  *  *
On Friday, the German press reported (and Bloomberg later confirmed) that Greece’s creditors had presented PM Alexis Tsipras with a document (essentially an outlining the following available funds that could theoretically be part of either an extension of the country’s second bailout or a third program (with the latter having been previously ruled out by the IMF and German lawmakers). The details are as follows:
  • EU creditor proposal foresees EU8.7b in EFSF funds: official
  • Creditor proposal foresees EU3.3b in SMP profits: EU official 
  • Creditor proposal foresees EU3.5b in IMF funds: EU official
As noted, if Greece receives €3.3 billion from SMP profits it will mean that the ECB has forfeited the money it made on the Greek bonds it purchased in the past, effectively allowing Athens to repay the central bank with its own money. 

Here's DB with some color:

There may be a more rapid disbursement option. EUR1.9bn of the EUR7.2bn stalled tranche is SMP profits. Releasing these funds might only involve a decision by finance ministers without necessarily consulting parliaments. Disbursing EFSF funds, on the other hand, requires the national approval process (e.g., the joint decision by the German Finance Minister and the Budget Committee, if not a full plenary vote). In other words, SMP profits could be disbursed at short notice. These would be sufficient to pay the EUR1.6bn owed to the IMF on Tuesday.

As for the EFSF funds, it's long been suggested that bank recap funds could be chanelled to Athens under the 'right' circumstances and apparently imminent default is as good an excuse as any. Citi has more on the EFSF funds:

The interim proposal would likely allow Greece to use part of the €10.9bn from the original Hellenic Financial Stability Fund (HFSF) designated for Greek bank recapitalization, and later transferred back to the EFSF/ESM. Various media outlets have reported on the possibility that around €9bn could be used for current expenditure, in line with our estimates of the financing needs of the Greek sovereign for 3Q. 

Although a unanimous agreement will be required at the ESM board level to redirect the resources away from its banking recapitalization objective, we believe that a deal is likely to be found. The release of such funds would allow an extension of the current programme for several months, while giving more time for creditors and the Greek authorities to complete the negotiations for a third aid programme. It could also convince the ECB to increase the T-bill ceiling and the SSM to raise the ceiling on the exposure of Greek banks’ to their sovereign. All this however remains conditional on the approval of the ‘interim’ package by the Greek Parliament as well as by various national parliaments (in Germany, the Netherlands and Finland among others).

German Chancellor Angela Merkel implored Tsipras to accept what she calls a “generous” offer and has been adamant that a deal must be struck by the time the market opens on Monday which effectively means that EU finance ministers will need to strike an agreement at tomorrow’s Eurogroup meeting which starts at 2 pm local time. “I spoke today about a very generous offer because we simply have moved a step toward Greece, also with respect to the February agreement,” Merkel said.

In the wake of this morning’s news, the rhetoric from Tsipras has only hardened with the Greek PM pledging to uphold the democratic values upon which the euro was founded and to not accept “blackmail” (which of course is rather ironic, considering Merkel said precisely the same thing with regard to the Greek on Thursday):

Document of proposals presented to the Greek side by the institutions is “worse than a memorandum,” ANA reports, citing Greek govt officials in Brussels.
Greek Prime Minister Alexis Tsipras says he will defend the European Union’s founding principles of “democracy, solidarity, equality, mutual respect” as he seeks an agreement with international creditors to unlock aid for the country.
These principles were not based on blackmails and ultimatum, and especially in these crucial times no one has the right to put in danger these principles,” Tsipras tells reporters in Brussels after an EU summit
The Greek government will continue decisively to give the fight in favor of these principles, to continue to give the fight on behalf of the European people and of course on behalf of the Greek people,” he says. 
Source in #Greece negotiations: "Not going well... Greeks backtracking significantly. Measures not credible. Don't know if there'll be deal"
Ed Conway (@EdConwaySky) June 26, 2015
Big concerns among creditors that Greek measures both unambitious & growth unfriendly. Will def be document for eurogroup. May not be agreed
Ed Conway (@EdConwaySky) June 26, 2015

For reference, here's a breakdown of what Greece's fiscal situation (i.e. budget deficit) looks like going forward:

From earlier

Creditors draw up emergency measures in case of Greek default
Eurozone finance ministers to plan for economic breakdown and social unrest if Greece does not accept terms for five-month bailout extension

26 June, 2015, 19.05 BST (6.05 am NZT)

Eurozone finance ministers and Greece’s creditors are to draw up emergency measures on Saturday to cope with a default by the debt-ridden country unless the Greek prime minister, Alexis Tsipras, accepts the creditors’ terms for a five-month extension of Athens’ bailout.

Greece has its last chance to bow to the lenders’ terms following five months of stalemate at a meeting of eurozone finance ministers in Brussels on Saturday afternoon, the fifth such session in 10 days.

Fearing a financial implosion and social unrest in the event of the negotiations collapsing, the ministers are scheduled to draw up plans on Saturday that could involve Greece imposing capital controls, including curbs on ATM withdrawals, to stem a flood of funds out of the ailing Greek financial system.

Game over”, said senior EU officials engaged in back-to-back meetings and negotiations for the past 10 days, as the brinkmanship in the Greek negotiations reached breaking point. If no deal is agreed at the weekend, Greece will miss a €1.6bn payment due to the International Monetary Fund next Tuesday, along with access to emergency support from the European Central Bank that is keeping the Greek banking system afloat.

The creditors have prepared a new funding offer, providing a lifeline to keep Greece afloat until the end of November by extending the bailout by five months and supplying €15.5bn (£11bn) in loans tied to budget cuts and tax rises.

As a two-day EU leaders’ summit ended in Brussels on Friday, several senior officials said Tsipras had to make a choice between accepting the creditors’ ultimatum or embarking on a road that could take Greece out of the euro. The chances of saving Greece were put at 50-50.

Angela Merkel, the German chancellor, who talked privately with the Greek leader in Brussels on Friday morning, urged him to go the “extra step” and accept what she described as “a very generous offer”.

She ruled out any more emergency summits on the Greek crisis and delivered a pointed message to Tsipras by stressing how, during the Cyprus bailout two years ago, Cypriot banks had to be closed “for a few days”, forcing the political leaders to come to Brussels to deal with the creditor institutions and the Eurogroup finance ministers in order to resolve the issue.

The ECB is keeping Greek banks on life support by providing €89bn worth of emergency funding, which is being topped up to keep pace with deposit withdrawals that hit more than €4bn last week alone.

The rejectionist hard line from Greece resounded loudly in Brussels on Friday as Tsipras flew home to a weekend of volatile and probably uproarious politics. In public, he sounded the note of no compromise.

The European Union founding principles were democracy, solidarity, equality and mutual respect. It was not based on blackmail and ultimatums. No one has the right to put in danger these principles,” he declared.

The Greek labour minister, Panos Skourletis, said: “We have moved from a take-it-or-leave-it scenario to the proposal of a five-month extension that makes no sense.” Tsipras called an emergency cabinet meeting in Athens on Friday evening.

Nothing is moving, neither side is budging,” said an EU source of thenegotiations going on behind the scenes. “It’s hard to see a deal because no one here believes the Greeks any more. No one trusts them.”

But other sources said there was now little in fiscal and budgetary terms dividing both sides and that the problem was more political than financial.
The differences are very slight,” said another official.

On the nitty-gritty of fiscal targets, spending plans and cuts, tax increases and economic reforms, both sides were said to be closer than before. On VAT rates and and taxable products, for example, there was only a gap of €107m between the sides. Privatisation and pension reform issues had been essentially settled, while the creditors were still demanding a doubling of defence budget cuts to €400m.

Tsipras has consistently maintained that the dispute is about politics more than money and can only be settled at the highest political levels. This has failed in two EU summits this week. He now faces the political choice of buckling or defying the credдtors.

I am not very optimistic,” said Jean-Claude Juncker, the president of the European commission, who has racked up at least 15 hours of negotiations with Tsipras this week.

The two-page paper on extending the bailout includes a footnote referring to the issue of debt sustainability, allowing the interpretation that the eurozone could eventually accede to a form of debt relief for Greece, which is Tsipras’s primary demand.

But any debt restructuring or rescheduling action would come with strings attached and would be the subject of later tough negotiations. The deal that may or may not be struck on Saturday wouldtherefore buy time for both sides without tackling core issues.

On Friday evening, EU officials said Tsipras had about 20 hours to make up his mind. If he capitulates, he would need to rush budget legislation through the Greek parliament on Sunday to allow the German parliament to endorse the package on Monday before it expires on Tuesday. “Otherwise he won’t get the extension,” said an official.

Teams of financial negotiators are to meet in Brussels on Saturday morning before the finance ministers’ meeting.

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