Greek Prime Minister Appears To Concede, But Europe Holds To A Hard Line
Greece's Prime Minister seemed to give in to some of Europe's demands today, but bankers are continuing to hold to the strict conditions they set last week.
Three days after closing banks and the Athens stock exchange, and after defaulting on a payment to the International Monetary Fund that was due yesterday, Greece’s Prime Minister appears to be signaling that he’s ready to concede to most of the changes that his nations creditors are looking for:
ATHENS — An unexpected new effort by Greece to compromise with its creditors on a bailout package prompted a cool response from most of the rest of Europe on Wednesday as the financial pressures on Athens intensified and efforts to find a way out of the crisis remained chaotic.
On another day of twists and turns, Prime Minister Alexis Tsipras’s government reversed course and said it would be willing to accept many of the terms of a bailout package that it had previously rejected, if they are part of a broader deal to address the country’s funding needs for the next two years.
While reviving hopes for a deal to end Greece’s latest financial crisis, the seeming reversal by Mr. Tsipras further underscored the confusion over his strategy as well as over where the monthslong muddle of negotiations now stood. The sudden turn of events raised questions about what offer was actually still on the table for Greece, whether Mr. Tsipras would still go ahead with a referendum scheduled for Sunday on a deal and, if so, what deal Greeks would actually be voting on.
In a letter sent on Tuesday to the creditors — the European Central Bank, the International Monetary Fund and other eurozone countries — Mr. Tsipras said Greece was “prepared to accept” a deal set out publicly over the weekend by the creditors, with small modifications to some of the central points of contention: pension cuts and tax increases. In the letter, released publicly on Wednesday, Mr. Tsipras linked Greece’s acceptance of the terms to a new package of bailout aid that would need to be negotiated.
The development initially raised the prospect of progress in resolving a financial crisis that has sent shudders through global markets and deeply strained European unity. President François Hollande of France called for talks in the hopes of getting a deal by the weekend, saying, according to Agence-France Presse: “We need to be clear. The time for a deal is now.”
But other European leaders, fed up with Mr. Tsipras and in no mood for quick compromise, dashed any hopes of an immediate breakthrough.
Chancellor Angela Merkel of Germany responded by repeating her position that there should be no further negotiations until Greece holds the referendum on Sunday — a vote that many European leaders hoped would amount to a rebuke of Mr. Tsipras.
Any further talks are likely to be complex and contentious. An existing bailout agreement expired at midnight Tuesday, meaning that Greece and its creditors would have to start over in assembling a package of aid and budget cuts. Moreover, many European officials remain deeply skeptical about whether Mr. Tsipras’s leftist government would implement the more painful elements of any agreement. The initial responses from European officials to the latest Greek proposal ranged from cautious to dismissive.
Mr. Tsipras went on public television Wednesday afternoon, telling Greeks that they should vote no on the referendum to improve his negotiating position.
He said that despite European characterizations, the vote was simply about a deal on how to manage the country’s debt crisis and not a vote on whether to leave the euro as the country’s currency.
“No does not mean a rift with Europe,” he said. “But a return to a Europe with principles.”
With shelves full of leather-bound books in the background, he also assured his country that he would continue to negotiate this week and after the referendum. And he thanked Greeks for staying calm in hard times. “This situation is short term and will not go on for long,” he said.
Finance ministers from the countries using the euro were scheduled to confer later on Wednesday. They had turned aside a last-minute plea for help Tuesday night from Greece but left open the possibility that they would take up Greece’s request for a new round of aid.
The change of tone from Mr. Tsipras, who in recent days had vehemently opposed the terms sought by the creditors, came hours after Greece missed a debt payment to the I.M.F., leaving Greece effectively in default and raising the pressure on the country to find a solution to its rapidly escalating financial squeeze. With its banking system shut down and access to more aid cut off, Greece faced the prospect of further debt defaults and the possibility of being forced to abandon the euro as its currency.
The letter from Mr. Tsipras was first reported by The Financial Times. The report sent stock prices in Europe higher.
News of the letter emerged ahead of a meeting of the European Central Bank’s Governing Council to consider whether to cut off entirely the line of credit that has kept the Greek banking system from collapsing.
In the letter, Mr. Tsipras said he was prepared to accept the European Commission’s proposal last Sunday, with five amendments on issues that had been particular sticking points.
He continued to ask for a lower value-added tax on Greek islands, for instance, to help bolster tourism and compensate for the high price of delivering goods to such areas. And he still objected to a system of automatically adjusting pension payments according to the financial strength of the underlying pension funds rather than relying on government assistance to maintain the payments.
But he accepted the bulk of what the Europeans had asked for in their last proposal, including creating strong disincentives to early retirement.
At this point, everything seems to hinge on the outcome of the referendum on Sunday:
The situation left unclear what Greeks would be voting on in Sunday’s referendum, assuming it goes ahead as planned. The wording was to ask Greeks to vote yes or no on whether they supported the terms offered by creditors last week — an offer that in effect expired with the existing bailout package on Tuesday night, and that appears to have been supplanted in any case by the offer put forward by Mr. Tsipras.
A recent poll found majority support for Mr. Tsipras’s call to vote no in the referendum, though that support shrank after the banks were closed and a cap of 60 euros per day was put on the amount that Greeks could withdraw from A.T.M.’s.
The poll, by ProRata, conducted from Sunday to Tuesday, found 57 percent of Greeks said they would vote against the deal the creditors proposed, with about 30 percent saying they would vote for it, and about 13 percent saying they were not sure. After the banks closed on Monday, the gap narrowed, with about 46 percent saying they would vote against the proposals, 37 percent said they would vote yes, and 17 percent said they were not sure.
In Berlin, Ms. Merkel indicated that Germany no longer considered the offer that the Eurogroup of eurozone finance ministers made to Greece over the weekend to be valid, telling lawmakers in an address to Parliament that the proposal had been coupled to the aid program that expired at midnight on Tuesday.
“With the expiration of the program, the basis for the offer has been removed,” Ms. Merkel said.
So basically, the Greek people could be voting on Sunday to accept or reject an offer that isn’t even really on the table anymore, which could make the dynamic quite interesting. As it stands, it seems as though the bank crisis, which has restricted Greeks to withdrawing no more than 60 Euros, about 66 U.S. Dollars, per day has had at least some impact on public opinion on the referendum. This would certainly explain not only the Prime Minister’s comments today, but also statements he made yesterday in which he tried to reassure Greek voters that rejecting the referendum wouldn’t mean that Greece would automatically be kicked out of the Euro, although one wonders whether those words had any impact since it isn’t necessarily a decision that’s up Greece alone.
For his part, Tsipras obviously believe that a no vote would give more leverage in future negotiations but it’s not at all clear that this is the case. One analyst on CNBC last night suggested that Europe has reached the point where they’ve decided that it’s time to take a hard line with the Greeks rather than treat the nation as they’ve done in more recent years because of the fear that allowing a Greek default and subsequent expected withdrawal from the Eurozone would lead to a financial panic and economic downturn. The thinking behind this strategy seems to be that investors and bankers outside Greece have had more than enough time in recent years to either take their losses on Greek bonds or prepare to offset those losses when they come such that the shock would not be as bad today as it might have been three or four years ago. I’m hardly enough of an international finance expert to opine on whether or not this is smart strategy, but it’s worth noting that, after taking a dive on Monday, financial markets in the United States and Europe have been relatively stable over the last two days notwithstanding the continued bad news out of Greece. This could mean that investors have indeed prepared themselves for the shock of the worst of the “Grexit.” If that’s the case, then Europe may not be willing to stray very far from the outlines of the package that Greek voters will be considering on Sunday. If it’s accepted, then perhaps a deal can still be reached. If the voters reject the deal, then Greece could be in for some painful times ahead, but in the long run Europe will likely be better off getting rid of this particular Sick Man of Europe.