Tuesday, February 21, 2017

Greece Teeters Back to the Edge of the European Union

by Yannis Palaiologos

Wall Street Journal

February 21, 2017

Greece’s Prime Minister Alexis Tsipras has been in a defiant mood lately. Some say it’s just a ploy, others believe he’s sincere. Either way, he could be pushing his country back to the brink of Grexit.

Speaking to his party’s central committee earlier this month, the prime minister had harsh words for Wolfang Schäuble, speaking of the German finance minister’s “constant aggressiveness” against Greece and his “contemptuous remarks” toward the country.

At the same meeting, Mr. Tsipras also accused the International Monetary Fund of not telling the eurozone the truth about the requirements for Greece’s recovery. The IMF, he raged, has lost “all scientific credibility” because of its handling of the Greek crisis.

Last month, on the second anniversary of his party’s rise to power, Mr. Tsipras claimed that the latest review of Greece’s third bailout program would be completed without his government having to legislate “a single euro” in new fiscal measures.

And earlier, during a Dec. 20 speech in Crete, he defended the bonus he offered to 1.6 million pensioners, against the protestations of Greece’s creditors. “No one has the right,” he said, “to tell us how we will make use of the surplus sums that stem from the hard work of the Greek people.”

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Saturday, February 18, 2017

Greece’s creditors are now the main impediment to solving the country’s woes

Economist
February 18, 2017

If history repeats itself first as tragedy and then as farce, it continues thereafter as endless iterations of Greek debt dramas. The script is wearyingly familiar. Greece’s European creditors are trying to close the second review of its third bail-out, which was signed in August 2015. That would enable them to lend Greece the funds it needs to meet €6.3bn ($6.7bn) of bond repayments due in July. But talks have run aground ahead of a meeting of euro-zone finance ministers in Brussels on February 20th. Bond yields have spiked, German ministers are issuing barbed comments, and dust is being blown off the Grexit files.

The review covers everything from health care to military wages. But thanks to pressure from the IMF—which has not yet joined the bail-out, as it did the previous two—Greece faces more pressing demands: to pass tax and pension reforms worth 2.5% of GDP, to kick in after the bail-out expires. Alexis Tsipras’s hard-left Syriza government will struggle to get these measures through parliament, but the alternative is to call elections that Syriza would probably lose to New Democracy, a centre-right party. Thousands of farmers wielding their produce took to the streets in Athens in outrage at more austerity (see picture). Unions are pondering further protests.

Greece has become a bystander to its own tragedy. The conditions attached to the bail-outs drastically reduce the government’s control over economic policy. For many Greeks, this makes politics itself pointless: 17% do not know a party they support (or will not say), while 15% will not vote at all. What sets today’s drama apart is the dispute among Greece’s creditors. These date back to the complex architecture of euro-zone bail-outs, jerry-built in haste in 2010. But today the debate is more public, and potentially more serious.

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Friday, February 10, 2017

Greece Faces Creditors in Brussels in Bid to Salvage Talks

by Sotiris Nikas & Nikos Chrysoloras

Bloomberg

February 10, 2017

Europe’s bailout monitors sat down with Greece on Friday to outline a new rescue plan meant to avert a brewing crisis that could -- once again -- threaten the integrity of the currency bloc.

Dutch Finance Minister Jeroen Dijsselbloem, who heads the meetings of his euro-area counterparts, along with Klaus Regling, who runs the euro area’s crisis fund, were set to present the offer to Greek Finance Minister Euclid Tsakalotos in Brussels, according to an official with knowledge of the meeting.

Greece and its creditors are scrambling to complete a review of the nation’s bailout, which would pave the way for additional aid before about 6 billion euros ($6.4 billion) of bonds come due in July. The new proposal would require Greece to legislate additional fiscal cuts equal to about 2 percent of its gross domestic product, which would be triggered if the country failed to meet certain budget targets, another official said.

Dijsselbloem said in an interview that he hopes the two sides would come to an agreement on issues including the labor market, pensions, taxes and budget. “Greece must reach a budget surplus of 3.5 percent and there are discussions about what is needed extra,” he said.

A Greek official sought to damp expectations from the meeting, telling reporters in Brussels that no deal is expected on Friday, and talks shouldn’t be dramatized. The official asked not to be named, in line with policy.

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Thursday, February 9, 2017

Greek bonds sell off sharply as EU-IMF rift deepens

by Jim Brunsden & Mehreen Khan

Financial Times

February 9, 2017

Greek debt sold off sharply on Thursday amid fears the country’s bailout lenders will not be able to bridge their differences in time to lend Athens the €7bn it needs to avoid bankruptcy.

The International Monetary Fund has refused to sign on to the aid programme unless EU authorities grant further debt relief to Greece, but the rift deepened after the head of the eurozone’s €500bn rescue fund dismissed the IMF’s demand.

Eurozone finance ministry deputies were locked in meetings on Thursday night attempting to resolve the dispute. Although Athens’ debt bill does not come due until July, authorities fear they must achieve a breakthrough by mid-February to avoid the issue becoming politicised in the upcoming Dutch and French national elections.

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Greece’s Never-Ending Fiscal Drama

by Simon Nixon

Wall Street Journal

February 9, 2017

No one wants another Greek debt crisis, least of all just ahead of a series of knife-edge elections in Europe. No one this time is trying to push Greece out of the eurozone. No one thinks what Greece needs now after eight years of acute depression is another dose of austerity. Nor does anyone seriously think Greece’s current debt burden is sustainable. So why is Greece once again back in the headlines, its future in the eurozone again called into question amid yet another standoff with its creditors?

The official explanation is that Greece’s bailout program is being held up by a dispute over the country’s fiscal targets. Under the deal struck in 2015, Greece is supposed to achieve a primary surplus before interest payments in 2018 of 3.5% and maintain this surplus for the medium term. Germany says medium term should mean 10 years; the European Commission would prefer it to mean one or two years. This matters because Germany has said it would only continue to fund Greece’s bailout if the International Monetary Fund puts money in too—and the IMF will only participate if the numbers add up. The lower the surplus target, the bigger the debt relief needed to make the numbers add up. That is a problem for Germany.

To make matters more complicated, the IMF takes a very pessimistic view of Greece’s current fiscal position. It now seems clear that Greece delivered a primary surplus of at least 2% in 2016, far above the initial program target of minus 0.5%. With the Greek economy now growing, the European Commission is confident the country can achieve the 3.5% target for 2018 with few extra fiscal measures. But the IMF says this year’s surplus was largely due to one-off factors and is sticking to its forecast that the surplus will only amount to 0.9% in 2018. Just to reach the 3.5% target in 2018, the IMF says Greece will need to legislate in advance extra austerity measures equivalent to 2% of gross domestic product. Athens says this is politically impossible. Brussels agrees.

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This Is Why Investors Are Suddenly Worrying About Greece Again

by Marcus Bensasson

Bloomberg

February 9, 2017

Greece is once again caught between the interests of its lenders and its own citizens. As part of a 2015 rescue package, Greece must meet strict fiscal targets to unlock more financial aid and keep the International Monetary Fund, an important creditor, involved. The IMF says the country won’t meet those targets, touching off yet another global spectacle over the fate of Greece, the future of the euro area and the viability of the single currency.

1. What’s the hullabaloo about now?

Same as it ever was. Greece’s government, unable to borrow from bond markets at affordable rates, has relied for years on loans from Europe’s bailout fund and the IMF to pay its bills. Those loans come with strict conditions, and the government and its creditors are arguing over whether Greece is fulfilling them. Investors are once again on red alert.

2. But wait, didn’t Greece just get a huge bailout?

It got an 86 billion-euro ($92 billion) bailout in August 2015, the country’s third (well, technically it was the fifth, but let’s come back to that). That ended a period of great turmoil, leading the casual observer to think the Greek problem had been “solved.” But the money doesn’t get released at once. Away from the spotlight, the government and debt inspectors are in near-continuous talks about compliance with the conditions. Two are central to the current impasse: Greece must grow its budget surplus (before paying interest on its debt) to 3.5 percent of gross domestic product by 2018, and the IMF must be on board.

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Solidarity with Greece will render its debt sustainable

by Klaus Regling

Financial Times

February 9, 2017

Greece has been under financial assistance programmes for almost seven years. There have been delays, concerns and real drama that brought the country close to leaving the eurozone. There has also been a lot of progress in making the Greek economy more competitive. But for many, Greece remains synonymous with bad news. Few were surprised, therefore, when the International Monetary Fund recently stated that the country’s debt was on an explosive trajectory.

A sober look at the facts shows that Greece’s debt situation does not have to be cause for alarm. The European Financial Stability Facility and the European Stability Mechanism, the eurozone’s rescue funds, have disbursed €174bn to Greece. We would not have lent this amount if we did not think we would get our money back.

Much has already happened to ease the country’s debt burden. Both public and private creditors have made unprecedented efforts to keep Greece’s debt sustainable. No other country in the world has ever received greater debt reduction. In 2012, private investors took a haircut on their holdings, scrapping €107bn in loans from Greece’s books.

Then, public creditors eased lending conditions significantly. This reduced the economic value of the country’s debt by around 40 per cent. As a result, Greece enjoys budgetary savings of about €8bn annually — the equivalent of about 4.5 per cent of gross domestic product — and will continue to do so for years to come. This does not lead to budgetary cost for European taxpayers. However, they do take on risks.

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Conflict over Athens’ surplus needles the IMF

Financial Times
Editorial
February 9, 2017


With much of the eurozone economy humming along nicely, and the sovereign debt crisis that engulfed the single currency region having largely receded, it is easy to forget that the country where it all started is still deep in trouble.

This week the enduring problem of Greece took a new and disturbing turn. It was revealed that the executive board of the International Monetary Fund is split on the question of what fiscal surplus Greece should be required to hit — which in itself will affect whether it needs official debt relief to reach sustainable growth.

Disputes between the IMF and the eurozone governments are hardly new but the fact that the fund admitted a division between its member countries is significant. European nations are over-represented on the board relative to their size in the global economy. Wielding that power to dissuade the fund from demanding debt relief from eurozone governments is a clear conflict of interest and poses a threat to the fund’s credibility and independence.

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Worries Grow Over Euro’s Fate as Debts Smolder in Italy and Greece

by Landon Thomas Jr.

New York Times

February 8, 2017

Even as global stock markets climb, worries are building among investors that long-simmering debt troubles in Greece and Italy will put additional strain on the euro.

Over the past year, aggressive bond buying by the European Central Bank and encouraging signs of economic growth across Europe have helped the eurozone overcome a series of political jolts, including Britain electing to quit the European Union and Italian voters rejecting the proposals of a reform-minded government.

Yet with the central bank expected to eventually unwind its purchases of government bonds and other assets, investors are increasingly becoming concerned about how Europe — and Germany, in particular — can cope with escalating debt pressures in Italy and Greece.

The result has been a sell-off of European government bonds as investment funds reassess the risks of holding such securities. In Italy, for instance, some hedge funds are making direct bets that the prices of Italian bonds will collapse.

The yield on Italy’s benchmark 10-year note — which moves in the opposite direction of its price — has doubled to 2.3 percent since late last fall. The yield on the equivalent Greek note has jumped to nearly 8 percent from 6.7 percent at the beginning of the year.

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Wednesday, February 8, 2017

Greek Government Divided Over Deadlock in Creditor Talks

by Nektaria Stamouli & Marcus Walker

Wall Street Journal

February 8, 2017

The Greek government is split over how to break a deadlock with creditors that has revived bond-market jitters and talk of “Grexit.”

Some aides to Prime Minister Alexis Tsipras are pressing for immediate fiscal concessions, while others are pushing for a tough stance toward the government’s creditors and the International Monetary Fund, Greek officials said.

The debate within the government, which is led by the Syriza party, comes as the IMF haggles behind the scenes with the German-led eurozone over the duration of Greek austerity and the cost of debt relief.

Amid the wrangling, doubts are mounting in financial markets about whether Greece can fulfill the tough terms of its latest, €86 billion ($91.9 billion) bailout plan, signed in 2015. The bailout was Greece’s third since 2010 and is encountering the same problems as the others: Repeated fiscal retrenchment is straining Greek politics without restoring confidence that the country can grow and recover.

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The IMF Staff Has It Right on Greece

by Mohamed A. El-Erian

Bloomberg

February 8, 2017

When the International Monetary Fund’s board met Monday to discuss Greece, it was heartening to read that “most Executive Directors” agreed with the staff’s view that the country’s debt, at 179 percent of gross domestic product at the end of 2015, was “unsustainable.” Yet “some directors had different views on the fiscal path and debt sustainability.” This division within the board also applied to what Greece still needs to do with its budget. With the medium-term primary fiscal surplus heading to 1.5 percent of GDP, “most Directors agreed that Greece does not require further fiscal consolidation at this time.” But, again, “some Directors favored a surplus of 3.5 of GDP by 2018.”

Despite the backing of a majority of the board for the staff’s technical assessment that Greece does not need to tighten its budget screws further but does require debt reduction, the institution is still unable to break a deadlock that harms the country, undermines the integrity of the euro zone, and puts the IMF’s own finances at some risk. Understanding why sheds light on the outdated governance that still plagues the IMF’s good functioning, dents its global standing and weakens its effectiveness.

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Greece’s Financial Odyssey: Pushing Back Against Austerity

by Marcus Bensasson

Bloomberg

February 7, 2017

Greece fought austerity and austerity won. When Alexis Tsipras, the brash young leader of a left-wing party, became prime minister in January 2015, he vowed to stop taking the economic medicine that shrank the country's economy by a quarter, saw more than a million jobs disappear and drove thousands of Greeks below the poverty line. His European counterparts, who had lent Greece more than 200 billion euros ($215 billion) to prevent its default, had a simple response: no. Six months later Greece's banks were shuttered, its stock market was closed, the economy was falling back into recession and the country stood on the brink of expulsion from the euro zone. Tsipras blinked, accepting a new bailout on terms harsher than those he had rebelled against. For more than a year, an uneasy peace held between Athens and Brussels, and Greece's place in the euro seemed assured. But the International Monetary Fund, which is barred from lending to countries unable to repay their debt, in early February 2017 said it didn't think Greece could meet fiscal targets set in the 2015 bailout. That makes it hard for the fund to remain as a creditor. It also threatens to unravel the 2015 deal; the IMF's commitment is necessary to keep Germany and other states as creditors. Wide divisions among euro-area states over the common currency and upcoming German elections further complicate any resolution.

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Tuesday, February 7, 2017

The new IMF Report for Greece

IMF
February 7, 2017

Greece: 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Greece

Despite the policy constraints imposed by its membership in the currency union, Greece has made significant progress in unwinding its macroeconomic imbalances. But extensive fiscal consolidation and internal devaluation have come with substantial costs for society, which contributed to delays in reform implementation and to policy reversals since the last Article IV Consultation, culminating in a renewed crisis of confidence in 2015. Since then, the situation has stabilized, and growth is estimated to have resumed modestly in 2016. Notwithstanding the substantial progress achieved by Greece, it still faces fundamental challenges: (i) a vulnerable structure of the public finances; (ii) significant tax evasion and an ineffective tax administration; (iii) impaired bank and private sector balance sheets; and (iv) pervasive structural obstacles to investment and growth. Moreover, its public debt remains highly unsustainable, despite generous official relief already provided by its European partners. Addressing these remaining challenges and restoring debt sustainability are essential to creating a vibrant and dynamic private sector capable of generating sustainable and equitable growth and employment.

Read the Report (PDF)

Greece: Ex-Post Evaluation of Exceptional Access Under the 2012 Extended Arrangement-Press Release; Staff Report;and Statement by the Executive Director for Greece

In accordance with Fund policies, this report conducts an ex-post evaluation of a four-year exceptional access extended arrangement under the Extended Fund Facility (EFF) with Greece approved in March 2012. The Fund committed €28 billion under the extended arrangement (SDR 23.8 billion or 2,159 percent of Greece’s quota at the time), following the cancellation of the 2010–12 Stand-By Arrangement (SBA). The program was supported by Greece’s EU partners, who committed €144.7 billion. Significant private sector debt relief (€106 billion) was completed at the outset of the program and large official debt relief was provided as well. The Fund disbursed SDR 10.2 billion. Only five out of 16 program reviews were completed as the program went off track finally in mid-2014. The arrangement was cancelled in January 2016.

Read the Report (PDF)

Greece: Selected Issues

Read the Report (PDF)

Greece Won’t Meet Fiscal Surplus Targets Set By Europe, IMF Says

by Andrew Mayeda & Ian Wishart

Bloomberg

February 7, 2017

Greece is on track to fall short of budget-surplus targets set under a bailout by the nation’s euro-zone creditors, the International Monetary Fund said.

Greece’s primary budget surplus will rise to 1.5 percent over the long run from about 1 percent last year, amid a modest recovery, the IMF said Monday after executive directors met to discuss the fund’s annual assessment of the nation’s economy. Still, the projected surplus falls short of the 3.1 percent forecast by the country’s European creditors.

The fund reiterated its view that Greece’s debt is unsustainable. Most of the executive directors don’t believe the economy needs more fiscal consolidation, the IMF said.

IMF board split over bailout terms for Greece

by Shawn Donnan

Financial Times

February 7, 2017

A stand-off with European authorities over the terms and future of Greece’s bailout has led to a rare public split on the International Monetary Fund’s board, amid growing questions over the fund’s participation.

European institutions and the IMF have for more than a year been at loggerheads over what the fund argues are far too stringent fiscal targets being demanded of Athens by its European creditors and calls by the IMF’s staff for Greece to receive more long-term debt relief.

The battle has raised questions over the IMF’s financial involvement in the current €86bn bailout, with German officials again on Monday saying that without the fund’s participation the rescue programme would end, potentially causing a new funding crisis for the government in Athens.

In an as-yet unpublished report on the Greek economy, the IMF’s staff argue that Greece’s debts are unsustainable and on an “explosive” path to reaching almost three times the country’s annual economic output by 2060.

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Monday, February 6, 2017

Greece’s Response to Its Resurgent Debt Crisis: Prosecute the Statistician

by Marcus Walker

Wall Street Journal

February 6, 2017

Greece is struggling under its austerity regime and new questions are mounting as to whether it can satisfy its bailout terms. Some people in high places know just whom to blame—a statistician in rural Maryland.

Before Greece’s debt crisis, its governments manipulated statistics and masked the size of budget deficits, waste and patronage. The statistician, Andreas Georgiou, moved from the U.S. to become Greece’s first independent head of statistics in 2010. The European Union certified he subsequently fixed the omissions and reported the deficit in full.

On the contrary, Mr. Georgiou’s foes claim, he manipulated the deficit figures as part of a plot to force severe austerity on Greece under the 2010 bailout “Memorandum” imposed by the EU and International Monetary Fund.

Four times in four years, Greek investigators or prosecutors have concluded that Mr. Georgiou merely applied EU accounting rules and committed no crime. Senior politicians and judges have nonetheless kept the accusations alive. He could face five trials, and life imprisonment in one case.

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Friday, February 3, 2017

The IMF Should Get Out of Greece

by Ashoka Mody

Bloomberg

February 3, 2017

The International Monetary Fund's involvement in Greece has been an unmitigated disaster: Time and again, its failure to heed crucial lessons has visited suffering upon the Greek people. When the fund's directors meet on Monday, they should agree to forgive the country's debts and get out.

The IMF should never have gotten into Greece in the first place. As late as March 2010, with concerns about the Greek government's ability to pay its debts roiling markets, Europe's leaders wanted the IMF to stay away. Europeans feared that the fund’s financial assistance to one of their own would signal broader weakness in the currency union. As Jean-Claude Juncker famously put it: “If California had a refinancing problem, the United States wouldn’t go to the IMF.”

Nonetheless, German Chancellor Angela Merkel decided that the IMF’s presence was the signal needed to persuade German citizens that Greece needed urgent financial support and that strict discipline in the use of those funds would be enforced. Merkel’s political priorities coincided with the interests of Managing Director Dominique Strauss Kahn, who was desperate to pull the IMF out of irrelevance. From that moment on, the IMF became Europe's -- mainly Germany’s -- instrument in Greece.

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Thursday, February 2, 2017

Greece: Another showdown looming with creditors

The Economist
Intelligence Unit
February 2, 2017


Three things are conspiring to lead Greece towards another conflict with euro zone creditors and another potential debt payments crisis. First, the government is finding it politically almost impossible to push through the reforms required to complete the second review of the bail-out programme. Second, some key euro zone governments facing populist insurgents at the polls are disinclined to make any concessions to Greece. Third, the long-running feud between euro zone institutions and the IMF over how to deal with Greece is coming to a head. In line with our long-standing forecast, we expect the government's political travails to mount in the coming months, and the risk of another early election is rising. We continue to forecast that Greece will leave the euro zone by the end of our medium-term forecast period.

Greece's euro zone creditors are insisting on completion of all reforms under the second programme review and on formal IMF participation in the bail-out programme before they release further funds to Greece. On January 30th Klaus Regling, the head of the European Stability Mechanism (ESM, an inter-governmental assistance fund for countries in the euro zone), the body responsible for loan disbursements to Greece under the third economic adjustment programme, said that Greece must complete the second programme review and the IMF must formally support the programme before the ESM would release further loan tranches. On January 31st the German Ministry of Finance made almost exactly the same points in a public statement.

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