Brussels, 22/06/2015 (Agence Europe) - The adrenaline rush caused by the convocation of the Eurozone summit on Monday 22 June has had the hoped-for effect: negotiations on the Greek dossier have been given a last-minute shot in the arm, with the second bailout plan due to expire on Tuesday 30 June.
In general, the eurozone leaders welcomed the proposals officially put forward in the morning, although a good deal of effort will still be required (see other article). The new Greek proposals are “a positive step forward, in the initial assessment of the 'institutions'”, said the President of the European Council, Donald Tusk, who is greatly reassured by the fact that the Greek Prime Minister, Alexis Tsipras, assured his colleagues that the Greek side would work “constructively” towards an agreement.
Athens and its creditors, represented by the 'institutions', now have “48 hours” to hammer out a deal, announced the Director General of the IMF, Christine Lagarde, who added that the negotiators are by no means out of the woods yet. It is now for the 'institutions' and Greece to focus in detail on the proposals on the table and make recommendations to the Eurogroup, which has been convened for Wednesday evening. The aim is to present the European leaders meeting for their regular session on Thursday 24 and Friday 25 June with positive results.
As far as Tsipras is concerned, the main thing is to put together a package of measures which will lead his country to growth. His aim is to secure the continued financial support of the 'institutions', ensure that the measures to be implemented will guarantee social justice, and allow the Greek public debt to become viable. The ball is now in the court of the EU leaders, he said. According to the French President, François Hollande, two Greek ministers will remain in Brussels to negotiate.
A Greek source confirmed that the government now accepted the budgetary objectives (primary surplus of 1% of GDP this year and 2% of GDP in 2016). As regards pensions reform, the Greek proposals are reported to go slightly beyond the additional savings called for and have been put at 1% of GDP in 2016. The 'institutions', however, are far from delighted by the fact that this reform will be based partly on higher employer contributions. On VAT, although the Greek proposals would lead to savings of 0.74% of GDP, the institutions believe that the VAT rate on restaurants and hotels should be raised to 23% (from 13% at the moment). This is a backwards step, as this rate was reduced in 2013 on a temporary basis in order to boost tourism, a decision about which even the finance minister at the time, Yannis Stournaras, was reported to have been highly sceptical.
As was also the case in his bilateral meetings with the President of the Italian Council, Matteo Renzi, and the President of the ECB, Mario Draghi, Tsipras raised the issue of the weight of the whole Greek debt during the summit. However, several of his colleagues are reported to have set him straight. “This is not the time to discuss that issue”, the President of the European Commission, Jean-Claude Juncker, is reported to have said. “The issue of the debt is not the priority issue”, said German Chancellor Angela Merkel. The Eurogroup agreement reached at the end of 2012 states very clearly that one of the pre-conditions for the Eurogroup to agree to reduce the burden of the Greek debt any further is for Athens to stick to its side of the bargain. The conclusion of the monitoring mission currently underway is therefore going to be a prerequisite.
By 30 June, the Greek Parliament will need to have formally adopted certain measures currently being negotiated. The Germans are reported to have insisted that this be done before the Bundestag takes position on the disbursement of a subsequent tranche of aid. There are also reports of various misgivings about the general balance of the reform package, which some feel does not do enough to promote growth. One diplomat therefore stressed that Tsipras will need to hold onto his majority beyond the vote on this package. A Greek government source said that there were no concerns on that question.
How will Greece manage to pay back the IMF €1.6 billion on Tuesday 30 June? It's not too late for an agreement to unblock a payment from the eurozone. “But life's not that straightforward”, said one diplomat, adding that the ECB could do a great many things if the political certainty surrounding the bailout plan were out of the way. On the Greek side as well, hopes were expressed that the ECB would be able to increase the cap on the volume of Greek bonds which the country's banks are allowed to buy.
In a meeting with Draghi, Tsipras had the opportunity to discuss the stability of the Greek banking system. The President of the ECB is also reported to have assured the Greek Premier that the Frankfurt-based institute would keep the banks afloat for as long as Greece remained under its programme, which is another way of stressing the need to act quickly. At the Eurogroup meeting, the German finance minister is reported to have asked whether there should be controls on movements of capital and was supported by the Irish and Spanish ministers, Michael Noonan and Luis De Guindos respectively. “Capital controls were not mentioned tonight”, Juncker said.
It seems certain that the second Greek bailout plan will be extended again, as Athens is incapable of refinancing itself alone from 1 July. According to one source, however, the Greeks feel that the details for this extension are “an open question”. It is not so much the duration of this extension as its content which they are struggling over. “All countries” ruled out the idea of the third programme, according to Hollande.
No to a 'Grexit'. The leaders cautiously stated that an agreement allowing Greece to remain a member of the eurozone was still possible, despite the amount of work to be done in an extremely short period of time. “I called this summit in order to put an end to a dangerous uncertainty and to avoid the worst-case scenario of a chaotic and uncontrollable 'Graccident'”, said Tusk. “We want Greece to stay in the eurozone”, said the German Chancellor Angela Merkel. Hollande said that “everything possible must be done to keep Greece in the eurozone”. Stressing the need to ensure that Europe becomes “stabilised” and exudes an image of “responsibility”, he expressed his hopes that the Greek issue, which has been “poisoning” the European well for a number of years, does not hinder economic recovery. “Greece knows that it can count on European solidarity, but at the same time, it has to act in full responsibility and stick to its commitments”, said the Spanish Prime Minister, Mariano Rajoy. The Lithuanian President, Dalia Grybauskaite, however, warned: “We are prepared to help Greece to an extent, but we can only do so if the Greeks are prepared to take on their responsibilities.” (Elodie Lamer with EH, MB, JK, PH)