Greece has a deal, sort of

Advertisement

We are painfully edging towards a resolution on Greece, but as per usual we aren’t quite there yet. A quick re-cap of the previous 24 hours.

Yesterday Greek party leaders ended a 7 hour meeting without resolution on the deal with the Troika (European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB)). A large number of consolidations have been made however the sticking point was cutting the pension which none of the parties wanted to support.

According to Bloomberg the draft of the Troika’s report stated the following:

Advertisement
  • Greece’s 2012 GDP will shrink by as much as 5%.
  • Greece is expected to return to growth in 2013.
  • Greece will cut 15,000 in state jobs in 2012.
  • Minimum wage will be cut by 22 percent to €586.
  • There will be no increase to sales tax.
  • The government will cut medicine spending will fall from 1.9% to 1.5% and merge all auxiliary pension funds.
  • It will also sell stakes in six companies—in particular, energy companies and refineries

Greece is also close to a deal with private creditors, the PSI+, which aims to exchange €206bn of bonds for €30bn in cash, plus €70bn in new lower yielding bonds. The deal with the Troika, the non-private sector creditors, has to be in place before then next €130bn in bail-out payment will be made, however it is really only €100bn because €30bn goes to the private creditors as the ‘sweetener’ for that deal.

All of these deals are supposedly setting Greece up to have government debt to GDP of 120% by 2020. However there has already been at least €15bn in slippage since those estimates were made, mostly because the Greek economy is collapsing under the austerity program. More evidence of that appeared overnight with the latest unemployment numbers:

Advertisement

Greece’s jobless rate rose to a fresh record of 20.9 percent in November from 18.2 percent in October, statistics service ELSTAT said on Thursday, as the debt crisis and austerity measures took their toll on the labour market

The Greek government also reported that the country’s industrial output fell 11.3 per cent in December YoY and Greece has entered its 5th year of recession.

Overnight, just as Mario Draghi was delivering his speech on the outcomes of the monthly ECB meeting in which they held rates, news came that a deal had been brokered between the Troika and the Greek political party leaders:

Advertisement

“The consultations between the government and the troika on the issue which remained open for further discussion were successfully completed this morning. The political leaders agreed on the outcome of these talks,” the office of Prime Minister Lucas Papademos said in a statement.

Over the last few days there has been speculation that the ECB would sell its bonds to the EFSF at purchase price which would allow some form of deal between the EFSF and Greece that could save Greece up €12bn. A discussion of this deal can be found here. During his overnight press conference ( below ) Mario Draghi stated that this was not possible because, once again, it would be directly funding governments which is outside the mandate of the ECB. However, what he did say was that it was normal procedure for the ECB to return profits made to ECB funding countries, therefore it would be up to those country to decide whether to use those additional funds to help out Greece. That potentially gives Europe an additional €12bn to recycle through Greece.

So it would appear that finally after months of wrangling all the pieces are in place for a private sector write-down and a new bailout package to keep Greece from defaulting on March 20 when a €14.5bn rollover payment is due on government bonds.

Advertisement

Well…. not quite.

Both deals now need to be endorsed by the Eurozone summit, and although Greek politicians believe they have now met all of the underlying requirements for both deals to proceed others appear to have slightly different opinions:

 .. the German finance minister, Wolfgang Schäuble, indicated that the endorsement would take some time. He said there were still “general requirements” outstanding, including approval by the Greek Parliament.

“The agreement, as far as I understand, is not at a stage where it can be signed off,” he said.

Eurogroup chief and Luxembourg leader, Jean-Claude Juncker added:

Advertisement

“There are a lot of unclarities still, we have to get a read-out and I don’t expect any final agreement tonight,”

While Mr Schauble emphasised how underwhelmed he was by telling reporters outside the meeting of EU leaders that they should not bother to wait around until the end because there will be nothing to announce. Greece’s parliament is expect to ratify the agreement with the Troika on Sunday when it is put to a vote.

And so we wait… again.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.