Wednesday

14th Nov 2018

Euro leaders signal breakthrough on Greece

  • The break-out meetings continued through the night (Photo: consilium.europa.eu)

Eurozone leaders reached an agreement over a new Greek bailout Monday (13 July) morning after more than 16 hours of edgy talks.

“EuroSummit has unanimously reached agreement. All ready to go for ESM programme for Greece with serious reforms & financial support”, European Council president Donald Tusk posted on Twitter, referring to the European Stability Mechanism, an emergency fund.

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The news followed a third meeting, in the early hours, between Greek prime minister Alexis Tsipras, Germany's Angela Merkel, France's Francois Hollande and Tusk himself.

An EU source earlier told EUobserver the talks had been "difficult", while another said Hollande acted as a "conciliator" between Merkel and Tsipras.

The main blocking point was a German demand for the creation of a fund to host Greek assets to be privatized or used to repay Greek debt.

Germany insisted assets worth €50 billion are transferred into the fund.

In addition to the sovereignty problem posed by this demand, Greece relied on an International Monetary Fund (IMF) estimate to say privatization could only bring €500 million each year, far below the €50 billion level.

Another blocking point was the involvement of the IMF in the new bailout.

The draft summit statement said Greece had "the intention to seek full involvement of the IMF in the monitoring and financing of the programme", a formulation Tsipras found too intrusive.

A third point of the discussion was Greek debt relief.

Despite Greek demands for restructuring or reprofiling of the debt, Greece's partners only accepted to renew a 2012 commitment "to consider possible additional measures to smoothen Greece's debt servicing path even further, if necessary", provided Greece "fully" implement measures agreed with the creditors institutions - the EU, the European Central Bank (ECB) and the IMF.

The emergency euro summit had started Sunday afternoon (12 July), with Germany threatening Greece of a temporary euro exit if strong guarantees were not given on implementation of reforms.

"The most important issue is missing, and it is trust" between Greece and its partners, Merkel said arriving at the summit.

To rebuild that trust, the draft statement prepared by the Eurogroup on Saturday evening and Sunday morning required Greece "to legislate without delay, by 15 July, a first set of measures" before negotiations for the new bailout could be open.

The measures included streamlining of the VAT, pension reform, "a major overhaul" of the civil justice system, the safeguarding of the independence of the Greek institute of statistics, and making the fiscal council operational.

At Netherlands' demand, Greece had also to agree to "amend or compensate" so-called "roll-back" measures taken by Tsipras' government. These are measures like the planned rehiring of civil servants that would cost more than what was agreed in the previous bailout memorandum.

All these demands, and others requiring that Greece submit some legislation to the creditors' approval, were accepted with difficulty by Tsipras.

"You cannot ask more, it will be a very hard”, Tsipras told other leaders at the start of the summit, a source said.

He added that the message sent by the eurozone leaders would be that all resisting governments would be punished.

But Greece, whose banks are on the verge of collapse after two weeks of capital control and no fresh cash from the ECB, can hardly afford to reject an agreement.

"We want an agreement”, a Greek source said while admitting it would be very hard to sell it back home.

Other sources said that the ECB also needed an agreement to be able to increase the level of the Emergency Liquidity Assistance and give some breathing space to the Greek financial system.

 An ECB meeting is scheduled Monday.

Even if an agreement is reached Monday, and bailout negotiations open later this week after the Greek Parliament votes on required reforms, Greece will still need €7 billion on 20 July, according to the creditors institutions.

Solutions for a bridge financing were discussed by the eurozone leaders, but it was still unclear Monday morning whether a decision had been taken.

According to different EU and national sources, France and Italy were ready to provide bilateral loans to help Greece repay €4.2 billion to the ECB on 20 July and meet other spendings.

France denied the information, however.

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Merkel will make the ultimate decision on Greece on Sunday, at a summit whose outcome will have major implications for the future of Europe.

Greece capitulates at EU summit

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Greek deal: details and next steps

Monday’s deal is just the first step in a long process to unlock €86bn of new aid, as well as €12bn in "bridge-financing".

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