Merkel to Tsipras: So long and thanks for all the fish


Yesterday Tsipras met 6 European leaders (plus one other guy) to discuss the dire situation Greece finds itself in, trying to push through a ‘political’ as opposed to a ‘technical’ solution. Here is what we know. Greece is now almost completely out of money for the following reasons:

  1. A significant fiscal gap has developed (primary surplus gone) due to abysmal tax collections and arrears.
  2. There are no (and will not be) any money coming from the Bailout Package till an evaluation takes place.
  3. Greek commercial banks cannot draw liquidity from the ECB to purchase Greek Bonds, as they are no longer accepted as collateral by Draghi.
  4. The Greek commercial banks cannot draw ELA liquidity to purchase state Bonds because a) ELA is kept at minimum levels and used to cover losses from a slow motion bank run in progress and b) the ECB is about to formally prevent the BoG from allowing credit lines to be used for the purchase of state bonds.
  5. The interim bailout extension agreement does not allow Greece to use the bank bailout fund for other purposes (meaning for its liquidity needs).
  6. There is no interim aid or credit lines from the ‘ex’ Troika so long as Greece does not present a package of structural reforms.

This last bit is a gift from yesterday’s party bag. Merkel yesterday made it clear that there will be no quick disbursement of emergency aid unless Tsipras delivers on unfulfilled promises on structural reforms. This is different from what was said so far, which focused on the fiscal impact of new measures. We are back now where we were before the agreement of 20 February, discussing progress in structural reforms and fiscal sustainability.

This means ladies and gentlemen, that the game is over. Time to start investing in bottled water and portable generators. In case you find this alarmist, just wait till there is an internal moratorium on state payment obligations and capital controls. How does one get out of this? No idea. Our ‘first time left’ government is cosy with the priests, so perhaps we should pray.




6 thoughts on “Merkel to Tsipras: So long and thanks for all the fish

  1. Tsipras letter to Merkel (from FT) about meeting on 23.2.15

    The €7.2bn in the last bailout tranche which Tsipras is trying to get includes funding from three sources: €1.8bn from the eurozone’s bailout fund, €3.6bn from the IMF, and an additional €1.8bn in Greek bond profits. These bonds were purchased by the ECB in 2010 as a way to calm the financial markets, and it was decided in 2012 that it wasn’t proper for the ECB to make a profit on them – so the profits would be sent back to national governments, who would in turn pay them to Athens. The new Greek government has repeatedly insisted those profits are due to Athens now, and some officials have suggested they could be doled out as an early sub-tranche if Greek authorities implemented a series of reforms quickly. But most eurozone officials – including Merkel – have said they won’t be distributed until the entire bailout review is completed.

    “Given that Greece has no access to money markets, and also in view of the ‘spikes’ in our debt repayment obligations during the Spring and Summer of 2015 (primarily to the IMF), it ought to be clear that the ECB’s special restrictions [see (a) above] when combined with the disbursement delays [see (b) above] would make it impossible for any government to service its debt obligations. Servicing these repayments through internal resources alone would, indeed, lead to a sharp deterioration in the already depressed Greek social economy – a prospect that I will not countenance.”

    This is the heart of the matter. Tsipras is saying that unless he gets money fast, he only has two options: stop paying what it owes to creditors, including the IMF, or cut back sharply on social spending. And he will not countenance a cutback in social spending.

    “Meanwhile, I also regret to report that little progress has been made in the negotiations between the technical teams in Brussels and Athens. The reason for the extremely slow progress is that the institutions’ technical teams, as well as some of the actors at a higher level, seem to show little regard for the 20th February Eurogroup agreement and are, instead, committed to proceeding along the lines of the Memorandum of Understanding that pre-dates both the 20th February agreement and 25th January 2015 – the date on which the Greek people elected a new government with a mandate to negotiating the new process established by the 20th February Eurogroup agreement. It is difficult to believe that our partners consider that a successful reform drive can be carried out under such restrictive and pressing constraints, including the financial squeeze that my government is currently labouring under.”

    This very succinctly describes the standoff. Tsipras thinks the bailout has changed, and the rest of the eurozone doesn’t. Among the things that comes with the old style of doing business is intrusive inspections by bailout monitors in Athens, and the Greek government until last week was not willing to accept those, since it reminded Greek voters of the reviled “troika”.


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