FT / Brussels Blog

Greece's Alexis Tsipras, left, with Germany's Angela Merkel on Tuesday night in Brussels

Greek authorities got their final dash to find a bailout agreement before the weekend formally underway on Wednesday by submitting a simple one-page request to the eurozone’s €500bn bailout fund, the European Stability Mechanism, for a new three-year programme.

Under the timetable agreed with EU leaders at Tuesday night’s summit, the request letter is something of a formality. The real details are due on Thursday, when Athens will submit their “prior actions” proposal – the detailed economic reforms that they will pursue under a new, third programme.

Still, the letter (which we’ve posted here) includes some interesting clues as to where Athens is headed. First of all, Greece is seeking a three-year programme and not a two-year bailout that was requested last week. The International Monetary Fund has estimated a three-year programme could cost as much as €70bn.

The letter also suggests Athens is willing to “immediately implement…as early as the beginning of next week” some of the things that creditors were demanding during negotiations on its old €172bn rescue, which expired June 30 – including tax reforms and pension system overhaul.

This appears part of an effort to quickly release short-term “bridge financing” so that Athens can repay the €1.5bn it still owes to the IMF, avoid a default on a €3.5bn bond due the European Central Bank in less than two weeks, and pay another €3.2bn ECB-held bond in August.

Greece’s recently-departed finance minister Yanis Varoufakis repeatedly argued that Greece could never leave the eurozone because there is nothing in the EU treaties that permits exit from the bloc’s common currency. But that hasn’t stopped EU lawyers from looking.

According to eurozone officials, EU legal scholars have been combing through the treaties to find provisions that would allow for Grexit – not because it is something they’re pushing for, but rather because they’re worried the country could be soon entering a legal limbo that could prevent it from getting the financial aid it desperately needs.

If Greece begins printing its own money – which could happen in a matter of weeks if the European Central Bank decides to cut off emergency loans to Greek financial institutions – it may no longer be eligible for aid from the eurozone’s €500bn rescue fund, since it is using a different currency.

But because Greece would still be legally part of the eurozone, it wouldn’t be eligible for the aid scheme reserved for non-EU countries, known as a “balance of payments assistance” programme. Hungary, Romania and pre-euro Latvia all received so-called “BPA” programmes during the crisis.

The traditional assumption is that because there is no explicit way to leave the eurozone, the only clause that comes into play is Article 50 of the Treaty on European Union, which allows for withdrawal from the entire EU. This would require Greece to request a departure, however, which is unlikely, and while there are an increasing number of leaders willing to let Greece leave the eurozone, none want it to leave the EU.

Officials say lawyers are instead looking at Article 7, which was adopted for a very different reason: In the wake of the Austrian government’s decision to include the far-right Freedom Party of nationalist Jörg Haider in a coalition, EU leaders wanted a way to punish countries that did not live up to European values.

What would a third bailout for Greece look like? The International Monetary Fund has provided the first public insight into how much it could cost, and it will be expensive. According to IMF estimates, over the next three years, Greece will need €52bn in new bailout financing.

That is close to an estimate we came up with in February. But that may not even be enough. The new IMF debt sustainability analysis, which we’ve posted here, assumes the money in the EU bailout that just disappeared would be used to cover Greek needs through October. That cash, about €16.3bn, is now gone. So the total price tag could go up to close to €70bn.

But that’s not all. The IMF report also assumes the budget targets and economic growth projections made during the recent negotiations still hold. Under that plan, Greece would post a primary budget surplus – revenues minus expenses, when interest on debt isn’t counted – of 1 per cent of gross domestic product this year, rising gradually to 3.5 per cent in 2018.

It also assumed no economic growth this year, but a return to 2 per cent growth next year and 3 per cent in 2017 and 2018.

Given Greek banks have been closed for a week and its economy is in free-fall, those targets are, in all likelihood, becoming more outdated by the minute.

Demonstrators backing a "yes" vote in Sunday's referendum in front of the Greek parliament

It may have come a few days too late, but Alexis Tsipras, the Greek prime minister, appears to have conceded on a whole raft of outstanding differences between his government and its international bailout creditors.

According to a letter sent late Tuesday night to the heads of the country’s trio of bailout monitors, which we got our hands on and have posted here, Tsipras concedes to most of the economic reform proposals published by the European Commission on Sunday, with a few significant exceptions that could still trip up any deal.

On one of the most contentious issues, overhauling the country’s value-added tax system, Tsipras still wants a special exemption for Greek islands, some of which are in remote areas and have difficulty accessing basic daily needs.

Keeping the islands’ exemption in place has been one of the main demands of Tsipras’ junior coalition partners, the right-wing Independent Greeks party. But creditors, whose main goal is simplifying one of the EU’s most exemption-ridden VAT schemes, have balked, saying it requires an entirely separate administration to keep the islands on a different, reduced rate.

On the toughest of all issues between the two sides, pension reform, Tsipras is demanding even more concessions, which come after the creditors have already moved quite a bit in Athens’ direction.

Alexis Tsipras, the Greek prime minister, has once again changed the terms of the debate in the ongoing crisis by requesting a new third bailout from the eurozone’s €500bn bailout fund, known as the European Stability Mechanism, just hours before his current bailout expires.

According to a copy of the letter sent to the ESM and Jeroen Dijsselbloem, the Dutch finance minister who chairs the committee of his eurozone counterparts, which we’ve posted here, the loan request is for €29.1bn to cover debts maturing into 2017.

That would seem to be a pretty traditional bailout request. But it also contains some untraditional demands that may be difficult for creditors to accept. Below is an annotated version of Tsipras’ letter:

On behalf of the Hellenic Republic (“the Republic” or “Greece”), I hereby present a request for stability support within the meaning of Articles 12 and 16 of the ESM Treaty.

The ESM treaty is the law that now governors all eurozone bailouts. It wasn’t in place for either Greece’s first or second bailouts, but it would set the terms for its third. Articles 12 and 16 simply state the purpose of a bailout programme: to “to safeguard the financial stability of the euro area as a whole and of its Member States.” Unfortunately for Tsipras, Article 16 also happens to mention that a new programme must include a new “MoU” – or memorandum of understanding, a phrase that is politically poisonous in Greece.

The EU’s top judge has written to the European Parliament’s president to complain about an MEP involved in the long-running and increasingly bad-tempered attempts to reform the general court of the European Court of Justice.

As a recap, the number of judges in the general court is set to double from 28 to 56 by 2019. The court itself had initially asked only for an extra 12, to deal with an increased caseload. But when this proposal was sent to the European Council, member states nixed the idea because they could not agree which countries would get the extra judges.

The council kept blocking the proposal until they got what they wanted: a proposal of 28 judges — one for each member state. This has upset some within the court, who argue that they are already hacking through the backlog of cases and, in some cases, are actually underworked. On top of this, at €220,000 each – plus generous allowances – the extra judges are not cheap.

Antonio Marinho e Pinto, a Portuguese MEP who is helping spearhead European Parliament work on the proposal, has been making life awkward. In April, he invited a handful of judges who had been critical of the reforms to Brussels to address MEPs. Likewise, in June he circulated figures which showed that the backlog of court cases was less severe than had been portrayed.

This behaviour has displeased Vassilios Skouris, president of the European Court of Justice, who sent the below letter to Martin Schulz, the European Parliament president, to complain.

Demonstrators hold up placards urging a "no" vote in Sunday's bailout referendum

[UPDATE] Late on Monday, Donald Tusk, the European Council president, wrote to Alexis Tsirpas, the Greek prime minister, to inform him that his request for reconsidering an extension of his country’s bailout had been denied. We’ve obtained a copy of that letter, too, and posted it here.

In it, he notes the eurogroup of finance ministers already decided the issue, adding:

After consultations with leaders, in the absence of new elements, I see no willingness to go against the position expressed by finance ministers at their 27 June meeting.

This is likely the last chance Tsipras had to avoid having Greece’s EU bailout expire on Tuesday night. With that gone, on Wednesday his country goes without an EU safety net for the first time in five years.

There may be less than 48 hours remaining in Greece’s EU bailout, and Saturday’s decision by eurozone finance ministers not to extend the programme through next Sunday’s Greek referendum on creditors’ “final” offer was largely seen as the final nail in the rescue’s coffin.

But could it still be extended at the 11th hour?

That’s clearly the hope of Alexis Tsipras, the Greek prime minister, who has written to all eurozone heads of government asking them to reconsider the decision. We’ve obtained a copy of the letter sent to Xavier Bettel, the prime minister of Luxembourg, who takes over the EU’s rotating presidency this week. A copy of the letter is posted here.

Tsipras at Saturday's parliamentary debate in Athens on legislation to call a referendum

The decision by Alexis Tsipras to hold a referendum on the creditors’ final bailout offer may have changed the political dynamics of the standoff between Athens and its international lenders, but what’s at stake financially really hasn’t changed.

On Friday, there was a bit of buzz that creditors had tabled a new €15.3bn offer to Greece to extend the current bailout through the end of November. But in reality, there was nothing new to it at all. It is essentially all the money left in the bailout, which was presented to Athens in a more fully articulated two-page memo.

Brussels Blog got its hand on the memo, and we’ve posted it here (apologies for its slightly rumpled appearance…I put it in the wrong pocket of my briefcase).

The main question that needs to be addressed with this document is: why are creditors offering €15.3bn rather than the €7.2bn tranche that they’ve been discussing for nearly a year?

Finance minister Yanis Varoufakis, left, with Greece's negotiating team at the eurogroup

Athens’ final counterproposal to its trio of bailout monitors would re-impose many of the large-scale corporate taxes and pension contributions that creditors demanded be stripped out amid concern it would plunge Greece into a deeper recession.

According to a copy, distributed to eurozone finance ministers Thursday and obtained by the Financial Times, Athens has stuck with its demand for a one-time 12 per cent tax on all corporate profits above €500,000, a measure the government estimates will raise nearly €1.4bn by the end of next year.

In addition, it would raise employer contributions to Greece’s main pension fund by 3.9 per cent and would more slowly implement measures to raise the country’s retirement age to 67 and “replace” rather than phase out a special “solidarity grant” to poorer pensioners.

We have posted a copy of the Greek counterproposal here.

Greece’s bailout creditors – the International Monetary Fund, European Central Bank and European Commission – eliminated the one-time profits tax and the increase in employer contributions to the pension system in their offer to Athens yesterday, arguing that such heavy levies on companies would severely hit economic growth. It also pushed for more aggressive timeline for raising the retirement age and cutting the special top-up for poorer pensioners.

Still, the Greek plans contain some key concessions from the original proposal submitted by Alexis Tsipras, the Greek prime minister, to creditors in an offer made on Monday. Although legislation raising the retirement age would not be implemented until the end of October – creditors want it to kick in immediately – it accepts the 67-year retirement age should be hit by 2022. Originally, Athens was proposing 2025.

Jeroen Dijsselbloem, eurogroup chief, confers with Mario Draghi, ECB president, on Wednesday

Eurozone finance ministers have begun to gather for their fourth meeting in a week, attempting yet again to strike a deal on a package of Greek economic reforms to release a desperately-needed €7.2bn in bailout funds to Athens.

The ministers have been sent what one official termed a “feasibility blueprint” – but the Financial Times has obtained a copy and it looks very much like the version creditors annotated and sent back to Athens on Tuesday. We’ve posted a copy of the document here.

The first place to look is page three of the nine-page document, where the section on pension reforms begins. This has become the major sticking point between the two sides and, while it makes some concessions to the Greek government, it is very much in keeping with creditor demands that early retirement schemes be curtailed and the effective retirement age be raised very quickly.

Under the plan sent to finance ministers, Athens would ensure the retirement age is moved to 67 by 2022, significantly faster that Alexis Tsipras, the Greek prime minister, had sought. Originally, Athens was pushing for 2036, but Mr Tsipras’ compromise plan submitted on Monday moved that to 2025.

IMF's Christine Lagarde, right, and EU economics chief Pierre Moscovici in Brussels Wednesday

As expected, the standoff between Athens and its creditors that exploded into the open on Wednesday has focused on pension reforms – a point made clear in a document obtained by the FT’s correspondent in Athens, Kerin Hope.

According to the five-page list of “prior actions” – which are always the real nitty-gritty in any bailout agreement, since it lists the specifics that the sitting government must implement and the calendar for implementation – creditors have asked for wholesale changes to the pension proposals made earlier this week by Alexis Tsipras, the Greek prime minister.

We’ve posted the document here.

In order to achieve savings of 1 per cent of gross domestic product – or about €1.8bn – starting next year, creditors are demanding a significant rewriting of Tsipras’ pension reform plan.

First, rather than gradually raising the effective retirement age to 67 by 2025 as Athens has proposed, creditors want that moved up to 2022 (Athens had originally shot for 2036 in one of its earlier proposals). The creditor plan would allow for retirement at 62, but only for those who have paid into the system for 40 years. Those measures would become law immediately, under the counterproposal.

A mother holds her child outside a migration centre in Rome last week

Brussels may be obsessed with the prospect of Grexit, and much of the focus of the two-day EU summit that starts on Thursday may be Brexit. But the issue worrying many EU diplomats going into the summit is something else entirely: migration.

For the first time, a draft conclusions sent around to national capitals on Monday (we have posted a copy here) includes language on how leaders will deal with the massive influx of refugees from North Africa. If you’ll recall, an emergency summit held in April explicitly left out any targets for numbers of refugees washing up on Italian and Greek shores that would be “relocated” in other EU countries.

Then the European Commission decided it would propose 40,000 of those refugees would be relocated and even came up with European schemes for relocation and resettlement (pdf) that divvied up how many each country would accept. National capitals were not too pleased with that.

The European Commission seems relatively happy with the new draft communiqué. The figures — 40,000 people, over two years — are still there. Likewise, the call for “rapid adoption” — perhaps at a meeting next month — of their migration proposals is stronger than some within the Berlaymont had feared.

But the conclusions do not mention the word “mandatory”, which has raised red flags since many fear that without resettlement quotas, countries will be hard pressed to avoid political pressure to keep refugees out. But it should be noted that the original proposals didn’t mention the word “mandatory”, either.

Greek soldiers march in front of parliament during a military parade to mark independence

One of the oddities of Greece’s bailout programme has been that, despite five years of punishing austerity, its military budget remains amongst the highest in the EU.

Early in the crisis, the issue became controversial during a dispute over whether Athens should follow through on a contract to purchase German-built diesel submarines – a move that was criticised as a way to curry favour with Greece’s largest creditor.

More recently, the far-left government of Alexis Tsipras raised questions when it agreed to sign off on a €500m programme to upgrade five aging US-made maritime patrol aircraft.

And according to a document obtained by Brussels Blog and posted here, the issue has come up again during the current standoff between Athens and its international creditors as a way to breach the fiscal gap the two sides are currently wrestling over.

To recap, Greece’s bailout monitors have pushed Athens to make up a €1bn-€2bn annual budget shortfall by cutting public sector pensions and raising value-added taxes on some items like electricity, which Tsipras has resisted. Creditors have insisted they are open to other ideas, but argue Athens has not come back with credible alternatives.

The three-page document, circulated among creditors, shows that two of Greece’s bailout monitors – the European Commission and European Central Bank – think defence cuts would be one way to make up the difference and have suggested changes (particularly moving to a less manpower-intensive force structure, a decision several Nato allies like the US have already taken) in talks with Greek negotiators:

Greece's Alexis Tsipras with EU Commission president Jean-Claude Juncker last week

This weekend’s fireworks over Greece’s bailout were centred on a new counterproposal submitted by Greek ministers, who flew to Brussels to turn it over by hand. As the world knows by now, senior European Commission officials – acting on behalf of all three Greek bailout monitors – rejected it out of hand.

For Brussels Blog readers who want to evaluate the proposal for themselves, we obtained a copy of the new Greek plan and have posted it here (our friends and rivals at the Greek daily Kathimerini beat us to the punch, and you can read their summary here).

The most important thing to note is that, after weeks of holding out, Athens has agreed to meet the creditors’ demands on fiscal targets for this year and next year. In 2015, they’ve agreed to a primary budget surplus – revenues minus expenses when interest on sovereign debt isn’t included – of 1 per cent of gross domestic product, and 2 per cent for 2016. That’s exactly the levels demanded by creditors in a compromise plan presented to Alexis Tsipras, Greek prime minister, nearly two weeks ago.

But creditors do not believe the underlying figures in the document support those targets. One official cited the €700m Athens proposes to save next year through cracking down on value-added tax fraud as an item that fails to hold up under scrutiny.

Merkel, standing, with her finance and defence ministers in the Bundestag last month

Just when is the real deadline before which Greece has to reach a deal with its creditors to gain access to €7.2bn in bailout aid?

Its current bailout ends on June 30, and officials think that if a deal is in place by the next scheduled meeting of eurozone finance ministers, June 18, there may just be enough time for Greece to pass the necessary legislation to get the rescue disbursement before the clock runs out.

But Stefan Wagstyl, the FT’s man in Berlin, writes to point out there’s another looming deadline that could cause problems for a Greece decision, tied to the upcoming recess of the Bundestag, which must approve any aid tranche:

It could be that Greece’s real deadline is much earlier that many realise: June 14. That is the date by which German officials say Greece and its bailout monitors must complete a new agreement for the German parliament to have time to vote on it before the end of the month.

Spain's De Guindos, left, and incumbent Dijsselbloem during a eurogroup meeting

Want to be president of the eurogroup, the increasingly powerful chairman of the group of 19 eurozone finance ministers? Your applications are due a week from Tuesday.

That’s the deadline set in a letter sent today to all members of the so-called “euro working group” – the panel of finance ministry deputies who prepare all eurogroup meetings – which officially kicks off the race to succeed Jeroen Dijsselbloem, the Dutch finance minister whose term ends next month. We’ve posted a copy of the letter here (and we’ve whited out email address of the officials you need to email your applications to…but if you want to apply, they can be provided by Brussels Blog upon request).

Dijsselbloem himself has already hinted publicly that he will throw his hat into the ring for another two-and-a-half year term, and his likely opponent will be Luis de Guindos, the Spanish finance minister. [UPDATE: Both men announced Friday they will run.]

According to an EU diplomat, Madrid has been lobbying for the issue to be raised at this month’s EU summit, a possible indication De Guindos feels he does not have the votes among the 19 ministers.

Tsipras, left, with European Commission president Jean-Claude Juncker on Wednesday

The Greek government of prime minister Alexis Tsipras has long argued debt relief must be part of any new agreement to complete its current €172bn bailout. But the compromise plan drawn up by its international creditors and presented to Tsipras on Wednesday night in Brussels (obtained by the Greek daily To Vima, and posted here) contains no such promise.

So Athens is intending to present its own restructuring plan that the government claims will cut its burgeoning debt load from the current 180 per cent of gross domestic product to just 93 per cent by 2020.

The plan is touched on in the 47-page counter-proposal Athens sent to its creditors Monday night (see page 44 in the document, posted by the German daily Tagesspiegel here). But it is given a full treatment in a new seven-page document authored by the government and entitled “Ending the Greek Crisis”. Brussels Blog got a copy and posted it here.

The restructuring plan is ambitious, offering ways to reduce the amount of debt held by all four of its public-sector creditors: the European Central Bank, which holds €27bn in Greek bonds purchased starting in 2010; the International Monetary Fund, which is owed about €20bn from bailout loans; individual eurozone member states, which banded together to make €53bn bilateral loans to Athens as part of its first bailout; and the eurozone’s bailout fund, the European Financial Stability Facility, which picks up the EU’s €144bn in the current programme.

If all the elements of the new plan are adopted, the Greek government reckons its debt will be back under 60 per cent of GDP – the eurozone’s ceiling agreed under the 1992 Maastricht Treaty – by 2030, as this chart from the document shows:

The Franco-German contribution ahead of today's Brussels meeting contains little detail

When eurozone leaders decided last year it was time for another look at overhauling their common currency, the main driver was Mario Draghi, the European Central Bank chief who has been one of the main figures behind the push to make the eurozone a more fully integrated and centralised union.

But in the months since a Draghi-backed decision for the eurozone’s four presidents – the heads of the European Commission, European Council, eurogroup and ECB – to present another blueprint on the way forward at June’s EU summit, the appetite among political leaders for a step change, always lukewarm, has cooled even more.

If documents sent around to national capitals in recent days ahead of Tuesday’s Brussels meeting of EU “sherpas” – the top EU advisers to all 28 prime ministers – are any indication, the report being pulled together may propose little more than a bit of euro housekeeping in the near term. Although more ambitious plans could be included, the leaked documents show they will be relegated to the medium and long term – a tried and true EU tradition that is normally a recipe for bureaucratic burial.

Among the documents obtained by the Brussels Blog are a three-page summary of what the new report will look like (posted here) as well as a Franco-German contribution (the French version is here) and that of the Italian government (conveniently in English, here).

Although the Italians emerge as the most ambitious reformers of the lot, the “note for discussion by sherpas” makes pretty clear that the measures being contemplated for immediate action are the leftovers from recent reform efforts – streamlining and clarifying the EU’s crisis-era budget rules, for instance, and adding a bit more financial heft to the EU’s bank bailout fund.

On Tuesday, Frans Timmermans, the European Commission’s first vice president who has been tasked with streamlining and overhauling the way Brussels operates, presented one of his signature initiatives – the so-called “better regulation” package aimed at scrutinising more carefully the rules Brussels imposes on businesses.

As the FT wrote after our hour-long interview with Timmermans, he is a relatively late convert to the Brussels reformist camp, having changed his view after a lot of soul-searching in 2005, when his native Netherlands voted against an EU constitutional treaty that he himself helped negotiate.

Perhaps Timmermans’ most notable contribution to the EU reform debate since then was a June 2013 Dutch government report he helped author that spelled out 54 different policy areas that should not be ceded to Brussels. Now Timmermans gets to practice what he preached – even more so, now that David Cameron, the newly re-elected British prime minister, has launched his attempt to renegotiate Britain’s relationship with the EU focused on many of the same reform issues. Timmermans is widely expected to be the European Commission’s point man in those talks with London.

As is frequently our practice at the Brussels Blog, below we offer an annotated transcript of our interview. Timmermans’ responses have been slightly edited for clarity. We started with that 2013 Dutch report, since much of what Timmermans recommended back then appears to be part of his agenda now that he’s in Brussels – ideas that were also articulated in a November 2013 op-ed in the FT.

I didn’t know you would bring this up but you do because it clearly shows that what I think and what I want to do is more or less in line with what I proposed as foreign minister, and those who say, well, ‘He’s only doing this to appease David Cameron’ can see that I’ve been thinking about this for quite some time.

Actually, it all started with an op-ed that I wrote in your newspaper, and Jean-Claude Juncker picked up on that and when he asked me to do this with him, he referred to some of the ideas that I had written down in the Financial Times. So, this was very much part of his thinking and his programme, as it was in Martin Schulz’s thinking, and this is what they both brought forward in the electoral campaign.

Juncker, left, with Greek prime minister Alexis Tsipras at last month's EU summit in Brussels

The Greek daily To Vima has a nice scoop this afternoon about a document they’ve been leaked purporting to be a new proposal from Jean-Claude Juncker, the president of the European Commission, on how to break the standoff between Athens and its creditors.

According to the To Vima report, the plan envisions a deal with Greece that completely cuts out the International Monetary Fund and releases about €5bn in aid to Athens from three different sources: the €1.8bn remaining in the EU’s portion of the current bailout; €1.9bn in profits from Greek bonds purchased by the European Central Bank back in 2010; and another €1.3bn or so in additional Greek bond profits the ECB will get in July.

In exchange, Greece would agree to adopt a relatively short list of economic reforms that are significantly narrower from those being sought by the IMF and a German-led group of hardliners within the eurozone.

The Commission’s spokeswoman responsible for economic issues, former Reuters correspondent Annika Briedthardt, has already distanced the Commission from the document, saying in a tweet that she’s not aware the proposal actually exists:

Can't confirm media reports on @EU_Commission /Juncker proposal on GR. Not aware of such proposal. Working towards comprehensive deal.

Other commission officials are similarly playing down its importance. “We have many documents,” said one, only half-jokingly.

Although nobody is admitting the provenance of the document, what it appears to be is one in a series of proposals going back and forth between the Commission and Athens in an effort to find common ground, rather than a full-blown “Juncker Plan” to cut the Gordian Knot.