From Frost to Cold Water

Equity markets cling to hopes of agreement with Greece, rhetoric from Germany is anything but encouraging.

Yesterday, the Financial Times reported Merkel Frosty on Greece’s Bailout Plans. Today the same story appears with the title of Merkel Pours Cold Water on Greece’s Push to End Bailout.

Chancellor Angela Merkel poured cold water on a push by Greece’s new government to end its bailout and strike a new financing deal with its creditors, saying the current programme was “the basis of any discussions that we have”.

Earlier in the day, Germany’s powerful finance minister hinted darkly that a Greek plan to leave the bailout at the end of the month could draw a harsh reaction from financial markets.

“I wouldn’t know how financial markets will handle it, without a programme — but maybe he knows better,” Wolfgang Schäuble told reporters, referring to Alexis Tsipras, the new Greek premier.

Cold Water, the Theme of the Week

Cold water appears to be the theme of the week. Bloomberg reports German Finance Minister Schaeuble Just Poured Cold Water on Market Expectations for a Greece Deal

Greece offered compromises ahead of an emergency meeting with its official creditors tomorrow as German Chancellor Angela Merkel remained unyielding over terms of the country’s bailout conditions.

Greek Finance Minister Yanis Varoufakis told lawmakers on Monday that the government intends to neither tear up the existing bailout agreement, nor allow the budget to be derailed. He said Greece will implement about 70 percent of reforms already included in the current bailout accord.

The European Commission denied reports it will present a compromise proposal at the meeting tomorrow, saying “very intense contacts are ongoing between” Commission President Jean-Claude Juncker, Prime Minister Tsipras and others, and that the plan being worked on is to keep Greece in the euro area. Expectations are “low” for a final pact this week, the commission said.

Greece sought to drum up support for a 10 billion-euro ($11.3 billion) bridge plan ahead of the euro-area finance ministers’ meeting in Brussels on Wednesday. The country is seeking to stave off a funding crunch, while also buying time to push creditors to ease some austerity demands.

German political leaders have said they will not extend more assistance to Greece without strings attached. Merkel said in Washington on Monday that the existing aid programs are the basis for Greek talks.

“I’m waiting for Greece to come forward with a viable recommendation and then we’ll talk about it,” she said.

The only “viable recommendation” from Greece that Germany seems willing to accept is 100% of what Germany wants.

Wildly Misleading Claims

Today, Euro Insight reports EU-Greek Relations Soured by Leaks; Sides Further Apart.

Brussels officials ‘infuriated‘ by ‘wildly misleading‘ Greek claims that Juncker and U.S. Treasury are backing Syriza plan to alleviate debt; EU official says Greeks are ‘digging their own graves;’

The carefully orchestrated dance between the new Greek government and its European creditors appeared to crack Tuesday, with top Brussels officials infuriated by what they see as wildly misleading claims coming from Athens.

A senior European official, who spoke on condition of anonymity, described the situation as “berserk” and said, “there is no plan.”

He added that the European Commission and U.S. Treasury were both perturbed at the way they had apparently been represented externally by Greek officials. A team from the U.S. Treasury led by Daleep Singh, deputy assistant secretary for Europe & Eurasia, was in Athens late last week.

The Greeks are digging their own graves,” the EU official said.

Early Tuesday, Greece floated its latest funding plan via press leaks, including to the Kathimerini newspaper,  proposing a bridge financing programme that would lead to a “new deal” with creditors from September onwards.

There were reportedly four parts to the new deal: 30% of the existing memorandum with the Troika will be cancelled and replaced with 10 new reforms agreed with the OECD; Greece’s primary surplus target would be cut from 3% of GDP this year to 1.49%; Greek debt would be reduced via an already announced swap plan; and the “humanitarian crisis” would be alleviated via policies announced by Prime Minister Alexis Tsipras Sunday.

The first official described the plan as “hopeless” and added, “how can you have a plan when you make no payment obligation till the autumn and then you probably scrap that.”

Time Ticking Away

  • February 11 Emergency meeting of the eurogroup, the committee of 19 eurozone finance ministers, to kick-start negotiations over a possible new bailout for Greece.
  • February 12 EU summit in Brussels, the first attended by Greek PM Alexis Tsipras, who is expected to meet German chancellor Angela Merkel on the sidelines.
  • February 16 Regularly scheduled eurogroup meeting which ministers have said is the deadline to agree an extension of the EU’s bailout programme, which Mr Tsipras has already rejected.
  • February 28 Eurozone bailout programme ends. Without an extension, Athens will not receive final aid tranche of €1.8bn.
  • March €1.4bn payment due on IMF loan and around €1bn to other creditors.

The first critical date would appear to be February 16, the date by which Greece needs to agree to the bailout program. However, that’s an unofficial date. Numerous countries need to vote on the extension even if Greece agrees to kiss Germany’s feet.

From a practical standpoint, if Greece agrees to demands by the 28th, eurozone leaders will find a way to make it happen.

At this point a deal seems unlikely.

Mike “Mish” Shedlock