If the plan of the Troika was to starve the Tsipras government and produce either capitulation or a loss of domestic credibility, their effort appears to be on track.
FAZ reported that the Greek government is set to run out of funds by April 8. Tonight, the Financial Times reports that Greek prime minister Alexis Tsipras sent a desperate-sounding letter to Angela Merkel on March 15. That appears to have led Merkel to meet with him at an EU conference last week and arrange for a one-on-one session tomorrow.
Alexis Tsipras, the Greek prime minister, has warned Angela Merkel that it will be “impossible” for Athens to service debt obligations due in the coming weeks if the EU fails to distribute any short-term financial assistance to the country…
In the letter, Mr Tsipras warns that his government will be forced to choose between paying off loans, owed primarily to the International Monetary Fund, or continue social spending. He blames European Central Bank limits on Greece’s ability to issue short-term debt as well as eurozone bailout authorities’ refusal to disburse any aid before Athens adopts a new round of economic reforms.
Curiously, the Financial Times story fails to mention that European Commission chief Jean-Claude Juncker offered €2 billion for humanitarian relief. However, there may be less here than meets the eye. If you read the text carefully, the €2 billion is the maximum Greece could get. And Juncker stressed, “That’s not meant to go into the coffers of the Greek state but to support efforts to create growth and social cohesion in Greece.” That would seem to imply that strings are attached or that there will be strict oversight of how the funds are used. And it was not clear how quickly the funds would be released.
But if we are to accept Juncker at face value, the €2 billion is for new spending for specific programs. And since the Syriza election budget proposed €1.8 billion for humanitarian programs, the intent of the Juncker offer might be to fund that part of the Greek reforms so as to eliminate that as a bone of contention and a potential PR disaster. Moreover, it could still be that the release of these funds is contingent on Greece getting its reform list negotiated and approved.
But even if you factor in this omitted bit of good news, the picture is still grim. From the pink paper:
Mr Tsipras was rebuffed in efforts to secure quick financing from either the ECB or eurozone lenders at Thursday’s Brussels meeting with Ms Merkel and a small group of other EU leaders — including French president François Hollande and ECB chief Mario Draghi.
In an interview, Luis de Guindos, Spanish finance minister, said his eurozone counterparts would not sign off on any new bailout funding until a full set of approved reforms was passed and implemented by Greek authorities, a process that could take months.
This comment by de Guindos is more deadly than it seems. He has emerged as the hardest hardliner in the Eurogroup, the committee of finance ministers. Recall that for Greece to get the near-term bailout funds it needs, it not only has to get the blessing of the Troika, but then the Eurogroup. And that vote has to be unanimous. A single dissent can block Greece. So de Guindos refusing to sign off on a change in procedures means Greece is still obligated to submit a detailed reform list and work with the Troika to get to a mutually acceptable version.
But keep in mind that de Guindos is not alone in that view. Merkel last week also stated, in effect, that Greece has to adhere to the process set forth in the February memo it signed with the Eurogroup. From Reuters:
“The agreement of Feb. 20 is still valid in its entirety. Every paragraph of the agreement counts,” Merkel told German journalists who questioned whether she was now offering cash for promises that many of her supporters have stopped believing in….
Merkel insisted only the completion of approved measures — in a final review by creditor institutions — would satisfy lenders including the Euro Group of euro zone finance ministers.
“The Greek government has the possibility of replacing individual reforms outstanding from Dec. 10 with other reforms, if these … have the same effect. The institutions and then the Euro Group must decide whether they do have the same effect,” she said, noting Ireland had made such changes with EU backing.
So understand what this means: Merkel knew last week that the Greek government was threatening default in order to get funds some funds released without having completed the process it had agreed to less than a month ago. She refused to budge.
The Financial Times provides more detail about the missive to Merkel:
Mr Tsipras’s five-page letter is particularly critical of the ECB, which he said had forbidden Greek banks from holding more short-term government debt than they did when they requested an extension of the current bailout last month — a cap that has prevented Athens from relying on Treasury bills to fill its urgent cash needs because Greek banks have become nearly the only buyer of such debt.
The Greek prime minister insisted the ECB should have returned to “the terms of finance of the Greek banks” that existed immediately following his government’s election — when ECB rules were more lenient — once the deal to extend Athens’ €172bn bailout through June was agreed last month.
Far from going easier on Athens, the ECB is considering whether to give its guidance to Greek banks more authority by making it a legally binding requirement not to add to their T-bill holdings. A decision is expected this week.
He also criticised the ECB for only increasing the amount of emergency central bank loans to Greek lenders “at shorter intervals than normal and at rather small increments”, arguing such drip-feeding continued to “incite speculation and spread uncertainty vis-à-vis Greece’s banking system”.
As we noted in our post last Friday, after Tsipras had met with Merkel, Draghi, French President Francois Hollande, Juncker, Eurogroup leader Jeroen Dijsselbloem, and EC council head Donald Tusk, the Financial Times described Draghi as “incensed” over the way Greece was making it difficult for inspectors from the ECB, European Commission and International Monetary Fund to do their job. One wonders if he was shown the Tsipras letter and that added to Draghi’s choler.
The Reuters report on the meeting last week stated that officials told Tsipras that if he presented a plan, the Eurogroup could meet on short order. But the message seems clear: the Greek government needs to flesh out its reform plans, and the starting point is the old, hated structural reforms, let the Troika inspectors do their work, and only then might it get some money.
We were worried from the outset that the Syriza slogan, “Hope is coming” was a bad omen. It looks as if the Greek government pinned far too much hope on the idea that it could play them off against each other (which we thought was remarkably naive) or that its creditors were so reluctant to avoid a Greek default that they’ve go into “extend and pretend” mode and throw Greece a financial lifeline. We’ll see what steps the Tsipras administration takes now that it sees that the Troika has closed the exits and does not seem inhibited about turning up the heat.