Monday, 29 June 2015

War of words fogs referendum

In an interview on national television on Monday night, Greek Prime Minister Alexis Tsipras confirmed that Greece would not honour an IMF bond on Tuesday, unless creditors accept its fiscal plan for the next 18 months.

He also left the door open for further talks, having walked out of them on Saturday, suggesting that Greece may be looking for a way to return. “We are still at the negotiating table. We never left the negotiating table. We are basically agreed on fiscal matters. On everything else we are prepared to talk.”

But a war of words has escalated between the Greek government and the rest of Europe over the last three days, leaving little hope that the Greek government can return to any sort of understanding with European colleagues and institutions.

Commission president Jean-Claude Juncker on Monday lashed out at the Greek government after repeated accusations that the Commission and Greece’s other institutional creditors, the European Central Bank and the International Monetary Fund, were to blame for the impasse in negotiations.

The Greek delegation walked out on talks “at the worst possible moment,” on Friday night Juncker said. “We were working on further openings and the Commission together with others was proposing to limit the increase of the hotel VAT in Greece to 13 per cent instead of 23 per cent envisaged earlier.”

Vice-President Dombrovskis was spending hours, days together with all the other Commissioners involved to put together all the elements needed to provide Greece a growth package of 35 billion euro,” Juncker said.

He made it clear that he did not believe the Greek delegation departed in good faith, accusing it of “egotism, and sometimes tactical or even populist games”. Greece walked out of talks in Brussels on Saturday, saying it had been presented with an “ultimatum”.

Juncker directly accused the government of lying about creditors’ intentions. “There is talk of an ultimatum, of a "take-it or leave-it" deal, as they say in French. We have heard about blackmail. But who acts this way? Who acts this way? Where do these insults, threats, misunderstandings come from - these incomplete sentences that carry the imagination of those who listen very very far away - too far?”

Tsipras said failure for last week’s talks belongs with creditors. He reiterated his belief that creditors are trying to intervene in Greece’s referendum since it was in their power to extend liquidity to Greek banks and use ECB profits on Greek bonds to pay the IMF, preventing a default - something Greece requested on Saturday. He criticised Greece’s Eurozone partners for putting themselves above Greece.

“There are no hosts and guests in Europe. And we don’t feel like guests in Europe… the Greek people are a European people. But those who use blackmail to violate all that has been achieved are doing it at their own risk.” 

But European leaders seem to be in no mood to accommodate Tsipras. In a statement on Greece on Monday, German Chancellor Angela Merkel insisted that the Greeks had to make the first move to mend their finances. “It is important—and in this position there will be no change—that own efforts and solidarity continue to belong together,” she said.

The Financial Times on Monday claimed to have obtained a copy of a letter from Donald Tusk, head of the European Council, turning down a Greek request to extend the financial assistance period by a month. "After consultations with the leaders, in the absence of new elements, I see no willingness to go against the positions expressed by the Finance Ministers at their June 27 meeting," the letter is alleged to say. It apparently, though, leaves open "the door to negotiations." 

Capital controls

Greek authorities began to clarify capital controls for households on Monday:

-Banks will remain closed for six business days, until July 6.
-ATMs were restocked on Monday but withdrawals are limited to 60 euros per card per day
-Domestic electronic transfers via web banking, phone banking and credit cards continue normally
-Cards issued by financial institutions abroad are not subject to these withdrawal limits
- Salary and pension deposits are to be made normally into beneficiaries’ accounts, but they are subject to the withdrawal limits

Retail business seemed to resume normally on Monday morning. While households are likely to remain liquid thanks to the fact that they have withdrawn several billion euros in savings over the past two weeks, it was unclear what the rules would be for businesses.

The heads of the country’s chambers of trade and industry wrote to Tsipras to seek an audience on Monday, saying that business was “asphyxiating”. 

Capital Controls in Greece

After a weekend of panicked withdrawals that caused cash machines across the country to run dry, the Bank of Greece has decided to impose capital controls beginning on Monday.

Prime Minister Alexis Tsipras blamed the decision on the fact that Greece’s creditors refused to extend its financial assistance arrangement by a month, after the two sides failed to reach an agreement on spending cuts and tax increases. The programme ends on Tuesday.

Supporters of Greece's 'No' vote occupied Syntagma Square in front of parliament ahead of a referendum, saying "No to unemployment, no to poverty, no to the euro."

“This decision led the European Central Bank today not to increase the liquidity of Greek banks, and forced the Bank of Greece to recommend a bank holiday and a limit on withdrawals,” Tsipras said in a Sunday evening address to the nation.

There were unconfirmed reports that banks might remain closed for six business days, until Monday July 6. Senior banking sources believe this is on the understanding that limited transactions via ATM, web banking and credit card would gradually be phased in.

The panic that seemed to be setting in across Greece followed Tsipras’ announcement in the small hours of Saturday, that his government would seek a referendum on the austerity package creditors propose, bypassing parliamentary procedure. That referendum is expected to take place on Sunday July 5. 

Inscrutably, the Greek government did not make public that proposal, even after it submitted it to parliament as a public document on Saturday. When the European Commission did so on Sunday, the government responded by issuing a point-by-point rebuttal of all that it finds objectionable, hoping to bolster its advice to the Greek people to vote against the measures. 

The ruling Syriza party has promised not to pass more austerity measures through parliament since it was elected in January. "We don't have the right to turn back and confound the hopes of those who votes for us, hoping that we will steer this country away from the status of a debt colony," Tsipras said. 

Creditors took offence at what they described as Greece's unilateral departure from week-long talks on Saturday. Jeroen Dijsselbloem, the chairman of the single currency bloc’s forum of finance ministers, said Greece was to face its creditors alone on Tuesday, when it must repay a 1.6bn euro bond to the International Monetary Fund.

As Greece’s programme will end that day, Dijsselbloem suggested that even a yes vote in the ensuing referendum would be pointless.

The rhetoric ramped up over the weekend, with Tsipras calling the ECB decision an attempt to “blackmail the will of the Greek people and subvert the smooth execution of the referendum.”

Following the Saturday panic, however, creditors dialled back the rhetoric of severance. On Saturday night, the European Commission affirmed that Greece remained a member of the Eurozone. On Sunday, IMF managing director Christine Lagarde said the IMF would “continue to carefully monitor developments in Greece… and stands ready to provide assistance as needed.” It added that it would continue to come to an agreement with the Greek government on a continued financial oversight programme.

Saturday, 27 June 2015

Greece prepares for referendum

Europe's single currency announced that it will not extend financial assistance to Greece beyond a Tuesday deadline, leaving the debt-ridden country without aid for the first time in five years. 

"It is the Greek government's responsibility to stand up to its obligations to international creditors," said Jeroen Dijsselbloem, chairman of the Eurogroup, the informal council of the euro-area finance ministers. 

The decision was a response to a Greek request for a one-month extension, so that Greece could hold a referendum on whether to accept the latest austerity measures proposed by creditors

Greek finance minister Yanis Varoufakis justified the referendum, saying "we do not have a mandate from the Greek people to reject this proposal, but neither do we have the authority to accept it... at least 50 percent of voters should take that decision." 

The parliament in Athens debated the referendum on Saturday. Its vote was due at midnight. 
The ruling leftwing Syriza party he is a part of came to power on 36 percent of the popular vote in January, promising to pass no more austerity measures through the legislature. 

Greek Prime Minister Alexis Tsipras announced the referendum in the early hours of Saturday. 

Although he told people to vote their conscience, he referred to the plan as "an ultimatum" that would add "an unbearable burden onto the shoulders of the Greek people, and undermine the recovery of the Greek economy and society by fuelling uncertainty and exacerbating social inequalities."

The decision soured already poor relations between Greece and its partners to such an extent, that Varoufakis was not invited to a second half of the Eurogroup meeting, although Greece is still technically a eurozone member. 

"Much to our regret, the Greek authorities decided to reject what was on the table, even though talks were not concluded. That was very regrettable," said a clearly irritated Dijsselbloem.

Drawn-out talks

The announcement comes after week-long talks with creditors in Brussels, including three meetings of eurozone finance ministers, the Eurogroup, and two summits of heads of government of eurozone countries. A fourth Eurogroup meeting was scheduled for Saturday afternoon.

Those meetings produced proposals from both the Greek side and its creditors which, on the substance, came considerably close to each other. However, after rejecting a Friday offer for a five-month postponement, Tsipras decided to oppose the creditors' proposals. He proposed the referendum during a late night cabinet meeting back in Athens.

Tsipras may have feared for the unity of his parliamentary bloc. Half a dozen MPs openly rejected the creditors' plan, as did top party bureaucrats. Previous crisis-era governments were critically weakened when austerity bills split their parliamentary blocs, and this is a fate Tsipras may have been trying to avoid.

Article 44 of the Greek constitution allows an absolute majority of all MPs (i.e. 151 out of 300) to vote for a referendum on "critical national issues". The ruling coalition of Syriza and Independent Greeks commands 162 MPs.

Many opposition lawmakers believe that the referendum is a proxy vote on euro membership. Greek governments have felt that elections are not mandate enough to bring unpopular austerity bills to parliament, and they inevitably turn to the people well before their term is over. 

This happened in November 2011, when socialist prime minister George Papandreou also called for a referendum on whether Greeks wanted to remain within the eurozone, along with the austerity prescriptions from creditors this involved. Although the question being put to Greeks now is more specific, the result of the referendum is expected to reflect Greek voters' resolve to keep the euro.

Conservative MP Kostis Hatzidakis said the government is presenting voters with a false choice. "The real question is, euro or drachma? And I am sure that the Greeks will once again say yes to Greece's European perspective. Greece cannot become Albania and Skopje," he said, in reference to former Yugoslav Macedonia. 

Conservative lawmaker Theodoros Fortsakis went as far as to say that the referendum "is unconstitutional because it distorts the substance of the question at hand." 

Many have accused the government of plotting this referendum for months, as part of an agenda to take Greece out of the eurozone. "The opposition should respect the rules of democracy and the government's proposal for a supreme democratic institution which is the referendum," said interior minister Dimitris Stratoulis in answer to that charge. 

"I am optimistic that the Greek people will deliver a "no" majority to the brash demands of creditors, to their threats and ultimata," he said. 

"I wonder, what will a 'no' vote contribute to what you've got?," said conservative lawmaker Makis Voridis. "You have a clear mandate from the Greek people to negotiate. Do you need people to give it to you again? … So what are you really asking for? You’re asking the Greek people to endorse their own exit from the Eurozone. You have every other mandate you need." 

What future for the Greek economy? 

Greece made a second request to one of its institutional creditors on Saturday. It asked the European Central Bank to spend 1.9bn euros in profits made on purchases of Greek bonds repaying a 1.6bn bond it must honour with another major creditor, the International Monetary Fund, on Tuesday. 

The ECB has said that it will return those profits to Greece, but has not specified when or how. The fate of Saturday's request remains unclear. 

Greek cabinet members have said over the past few weeks that the government will not honour its IMF bond without a deal that finances Greece past June 30, when its current oversight programme under the IMF, the European Central Bank and the European Commission runs out. 

A default could trigger all three of Greece's institutional creditors to demand full repayment of some 200bn euros in loans. (Klaus Regling, chief of the European Stability Mechanism, which operates under Commission authority and holds 140bn euros in Greek debt, has already said he will do this). Greece cannot honour such a demand, which will lead to a drop in the value of Greek bonds in world markets. 

Those bonds are the main collateral Greek banks currently use to draw Emergency Liquidity Assistance from the ECB. A default will therefore likely cause the ECB to stop approval of that liquidity, leading to capital controls in Greece. Anticipating this, many Greeks formed queues at ATMs overnight. 

While Greek businesses and households have drawn some 40bn euros in savings since elections were declared in December, the effect of a temporary bank closure and capital controls on the economy has not been accurately gauged.