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;’ Lazard criticized by EU side
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.
Apparent claims from Athens officials to other governments and media suggesting that the U.S. Treasury supports a plan by the Syriza-led government to alleviate Greece’s debt, and that the European Commission president Jean-Claude Juncker either backed the plan or had an alternative himself, have enraged senior economic officials in Brussels.
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.
At the G-20 meeting in Istanbul Tuesday, the U.S. Treasury secretary Jack Lew said that Greece and its international creditors must find a pragmatic solution to that country’s debt crisis, adding that US officials would like to see rhetoric on the issue toned down. “I don’t think that there should be casual talk about the kind of resolution that would end up leaving Greece in a place that is unstable or the EU in a place that is unstable,” Lew 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.
Putting aside frustrations about communications from Athens, initial reactions from Eurozone capitals to the ideas in the draft plan have not been positive.
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.”
An exchange between the new Greek finance minister Yanis Varoufakis and Europe’s representatives, Thomas Wieser and Declan Costello, on Sunday was not successful, according to a source with knowledge of the encounter. The source said the Greek side gave the impression that if the Eurogroup did not agree with its stance, then the creditors could “go to hell.”
Also Sunday, Tsipras warned that he would not back down from his pre-election promise to seek a new deal with the country’s international creditors.
Discussions in Brussels on Wednesday and Thursday, when leaders from the EU arrive in the Belgian capital, are now expected to be fraught. “The leaders don’t want to discuss this,” the senior source said, “How can they?”
Euro area officials had hoped to have a formal plan in place on how to solve the standoff between Greece and its creditors by the end of the Eurogroup meeting on February 16 following a meeting of EU leaders this week.
If discussions irrevocably break down, some form of Greek default this year appears possible, although the European official stressed that Athens could probably “scrape together” enough money to meet an IMF payment due in March.
Many of the new Greek government’s proposals still stand at odds with agreements made by the previous executive in Athens and questions over reform commitments in Greece are still being raised.
Greece already committed to five main reforms suggested by the OECD in its “Going for Growth” report on reforms last year. These include enhancing the efficiency of labour markets, reducing barriers to competition, improving the efficiency of the education system and doing the same in public administration and taxation. But Eurozone officials question how far those have been implemented.
And the EU is unlikely to support the OECD taking over responsibility for reform efforts in Greece even though the continued presence of the Troika of international lenders, and particularly of the International Monetary Fund, is politically sensitive in Athens.
“The OECD would be a very small watchdog without teeth,” said another well placed EU official, stressing the lack of resources within the OECD currently providing surveillance over Greece. “I don’t think it would be able to provide anything.”
This second official stressed that the new administration, dominated by academics and with a civil service appointed by political opponents, needs proper technical help, and the expertise lies in the IMF and EU Task Force for Greece.
Such views are widely backed by member states such as Germany, Finland, the Netherlands and Portugal. Others such as France and Italy, who have appeared more malleable towards Athens, would still not back total eradication of the IMF in Athens due to its rigour.
On plans presented by Greek finance minister Varoufakis to swap Greek debt for GDP-linked bonds, the official stressed that interest rates for Greece are already ultra low and what Greece needs is liquidity, and it won’t get that by reducing rates on loan repayments, whether via a haircut (swaps) or reducing rates directly.
“This has not been tested very much and has lots of technical issues around it,” said a third EU source, adding that issues such as deducing “the threshold after which investors would start to catch a windfall” was one of many complex issues for policymakers to sort out.
The lower primary surplus is possible, the sources said, but dependent on the debt sustainability analysis upon which both IMF and EU funding are contingent.
“You can’t cheat these numbers,” the second official said. “You could lower the surplus in exchange for a credible plan for higher GDP growth but they would need to change their growth model drastically for that.”
Indeed, the position of many in Brussels towards the proposals coming out of Athens is one of skepticism. Many simply don’t buy the argument that Greece can sustain its 4% of GDP primary surplus target and still alleviate pressure on society.
“The new Greek government’s argument that this is an unreasonable target fails to withstand scrutiny,” Daniel Gros, director of the Brussels-based European Policy Studies, wrote in an opinion article Tuesday. “After all, when faced with excessively high debt, other European Union member states – including Belgium (from 1995), Ireland (from 1991), and Norway (from 1999) – maintained similar surpluses for at least ten years each, typically in the aftermath of a financial crisis.”
Asked about the chances that Greece would be able to reduce its primary surplus, the source said that he “hasn’t seen any reasonable argument why that would be necessarily impossible.”
“But everything comes easier if you’ve shown a couple of years that you have implemented the agreement you have already made,” the source said, expressing doubt that there would be widespread support for giving Greece too much leeway on the issue of reducing its primary budget surplus to as low as 1.49% of GDP.
The recent noises from Tsipras suggest he is hoping for some higher consumption from redistribution, but the creditors want Greece to achieve growth through public and private investments and competitiveness. “If they go for consumption-driven growth I think all the programs are over,” the second source said.
In terms of the financing for Greece’s planned bridge programme, the Greek newspaper eKathimerini reported that Greece wants to secure the €1.9bn of profits from Greek bonds held as part of the ECB’s Securities Markets Programme to increase T-bill issuance above the current €15bn cap. It is also said that Greece would like to increase the current Emergency Liquidity Assistance limit (€59.5bn), to potentially draw down a portion of the delayed €7.2bn tranche from the current bailout programme and possibly make recourse to the €11bn remaining from the country’s bank recapitalisation fund to assist Greek lenders.
The second official said however that the Eurgroup would be unlikely to sanction any of that without an agreed programme for after Feb 28.
“For the Eurogroup to just agree new liquidity puts an awful lot of faith in a new government, without knowing what’s planned,” he said. “The ECB has stopped support, the EFSF and ESM need programmes (in place, to lend) and bilateral loans would be hard to pass domestically.”
Meanwhile, the only advisor to the new Greek government, the investment bank Lazard, is not seen as playing a positive role by the EU side to date. One EU official described the Lazard bankers as “incompetent” and “counterproductive.”
Speaking on France Inter radio Lazard debt adviser Matthieu Pigasse said cancelling €100bn of Greece’s debt would enable the country to cut the load in line with targets set by the international authorities that bailed out the nation.