Greece proposed five-year ‘time out’ from Eurozone, Malta sceptical over bailout

Greece’s finance minister Euclid Tsakalotos yesterday faced the wrath of the Eurogroup’s ministers, as they tore into the draconian austerity terms the left-wing Syriza government was now accepting, just a week since they were rejected by the Greek people in a landslide referendum.

It will be left up to heads of government in today’s extraordinary European summit to decide on whether Greece is fit, trustworthy, and capable to deliver on a two-year, €12 billion savings programme of radical spending cuts and tax collection measures, in order to receive €74 billion it needs to repay its debts over the next three years. It includes €25 billion needed to recapitalise Greek banks.

Ministers agreed to adjourn the meeting until 11am, today 12 July. "We had an in-depth discussion on Greek proposals. The issue of credibility and trust was discussed and also, of course, the financial issues involved. But we have not concluded our discussion... It is still very difficult, but work is still in progress," Eurogroup president Jeroen Dijsselbloem said.

Briefed about inconclusive #Eurogroup meeting. It will be a long day -JM

— Joseph Muscat (@JosephMuscat_JM) July 11, 2015

Tsakalotos endured hours of his counterparts’ criticism over Greece’s delays in accepting negotiations with the Troika, and even calls to debate a possible exit from the eurozone, led by Germany, Finland, and even Slovakia.

German finance minister Wolfgang Schäuble – believed to be taking a more hawkish stance than Chancellor Angela Merkel – yesterday pushed to have Greece deposit €50 billion in assets in an external fund in Luxembourg, and to accept automatic spending cuts to keep to its budgetary targets.

But a leaked document shows that Germany is also proposing a five-year “timeout” for Greece to leave the eurozone so that it could have its debt restructured – which is not allowed under eurozone rules – and receive some form of humanitarian aid.

But the decision as to what will happen to Greece will have to be taken at a political level by heads of government.

Italy and France are said to be getting ready to tell Germany that Greece can no longer be humiliated. But Germany has the backing of Finland, whose coalition partners the True Finns, are threatening to leave the government if more finance is extended to Greece.

Tsakalotos pleaded with ministers yesterday to have Greece given another chance. Sources told MaltaToday his speech was “impassioned and emotional... evidently feeling cornered and in a hopeless situation.”

He was said to have told finance ministers that Greece was accepting a bigger programme that had to be discussed over the next four weeks. “What else do we need to do? What else do I need to commit myself to?... if you refuse us, it would be tragic for Greece.”

German proposals

But the Germans’ initial treatment of Greece’s proposals was that they lacked “a number of paramount important reform areas to modernise the country”, adding that the labour market reform, public sector reform, and privatisations were insufficient.

The two avenues it proposed was the transfer of €50 billion of Greek assets to an external fund like the Institution of Growth in Luxembourg, to be privatised over time and decrease debt; and automatic spending cuts in case of missed deficit targets.

But it also proposed an audacious Plan B.

In case debt sustainability and credible implementation of reforms could not ensured up-front, Greece “should be offered swift negotiations on a time-out from the Eurozone, with posible debt restructuring, if necessary, in a Paris Club... over at least the next five years.

Only this way forward, the Germans said, could allow for sufficient debt restructuring, which was now not in line with the EU Treaty’s rules for membership in the monetary union.

“The time-out solution should be accompanied by supporting Greece as an EU member state and the Greek people with growth-enhancing, humanitarian and technical assistance over the next years. The time-out solution should also be accompanied by streamlining all pillars of the Economic and Monetary Union and concrete measures to strengthen the Eurozone’s governance.”

Inside the Eurogoup

The finance ministers’ technical teams started work on the Greek proposals at 3pm, but it was clear from the very start that eurozone ministers would not concede much ground. Although Greece was turning its back on its red lines, finance minister Edward Scicluna said the proposals showed an “incongruence” with what Syriza promised its electorate, and that creditors now had a problem in trusting the Greek government.

The eurozone’s sire, German finance minister Wolfgang Schäuble, had the same line ahead of the meeting. Greece’s proposals could not be trusted to be implemented after their radical volte-face.

His officials said Greece did not have the capacity to implement a three-year financing programme, and suggested that it privatises its assets into an external fund that would provide it with solvency.

Germany, mindful of its electorate’s opposition to any relief, ruled out a debt haircut, saying this was not allowed by the Treaties, and said that it would be difficult to re-profile the debt “without making us look ridiculous”. “We need to be serious and face reality and not keep kicking the can down the road,” German officials said.

Malta echoed the sense of skepticism inside the room. “There are contradictions which we have not solved yet,” Scicluna told the ministers. “We are seeking reassurances which in this case can no longer be given by word of mouth or even by written text, unfortunately. We’ve been here before.”

He also accused the Greeks of allowing debt to climb up from 124% to 200% over four months simply with their reluctance to meet the institutions.

Likewise, Austria said it could not sell a new programme to its electorate with Greece’s track-record in implementation.

Finland, whose national TV stations yesterday reported that it wanted Greece out of the eurozone, said the reforms did not even go far enough. “You are asking for €74 billion after a referendum,” minister Alexander Stubb said, whose government is in coalition with right-wingers True Finns Party, which staunchly oppose more finance to Greece. “How do I sell this at home? Can Greece be trusted to stick to the rules?”

Slovenia vociferously said it could
not concede yet another finance package with a haircut, when Greece
had never honoured its commitments. “The IMF has already said it is unlikely to meet its new commitments. Why are ridiculing ourselves. We do not have a mandate for this. I want to know the cost of plan B,” its minister said.

Portugal echoed the Finns’ mistrust of such an “astonishing” programme, with such a thin basis for negotiations, while the Dutch said there were serious concerns with the commitment of the Greeks. The Slovaks refused to start negotiations.

Spain, whose prime minister Mariano Rajoy faces an electoral battle to fend off the left-wing Podemos, also disputed the ability of Greece to commit to a reform package it had just refused a week ago in a referendum.

The Italians and French were less hawkish, and suggested that negotiations should proceed if the Greeks can implement reforms within the next days to reinstate trust in their pledges. Cyprus said a positive conclusion would require more from Greece. “Trust must be earned. We should give Greece a last chance. Negotiations should be taken further.”

Greece’s new finance minister, Euclid Tsakalotos, however turned down Germany’s proposal to take national assets into an overseas fund.

Sources told MaltaToday that Eurogroup president Jeroen Dijsselbloem had to interrupt Tsakalotos’s “long, rambling and theoretical speech” which appeared to skirt around the questions he was being asked.

Tsakalotos agreed to have external auditors on any new programme, while the International Monetary Fund said they would add 20 years to debt maturities and another 10 to the grace period: 30 years to the 60 years for the debt repayment, a re-profiling that should leave Greece in a position to return to the market before the end of the programme.