It was always going to come down to the last minute. Ahead of today’s meeting of eurogroup finance minsters, it is clear that Greece’s new proposals are being taken seriously by the creditors. But it is not yet certain that ministers will give the green light to start full negotiations on a new programme. The following are the key questions.
Can a deal be done politically? Do the main creditor countries and the institutions trust prime minister Alexis Tsipras to deliver? This is really the heart of it. If they do, any problems in what Greece has submitted will be worked through. If they don’t, these will become issues and blockages to a deal. As well as the German Bundestag, seven other national parliaments have to vote on the deal and a number of European governments face significant domestic political opposition to signing up. The new Greek finance minister, Euclid Tsakalotos, seems to have rebuilt some bridges. Tsipras is also trying to hold on to political support at home.
Do the numbers add up? This is bound to be tricky. The economic situation in Greece has deteriorated in recent weeks, particularly since the banks closed. This will have widened the hole in the public finances, meaning more cuts and tax hikes will be needed to close the gap. Forecasts for the Greek finances will be discussed by euro zone finance officials this morning and by ministers in the afternoon. Budget targets for the next few years were put in brackets in the Greek documents submitted, indicating that work is still needed here.
Can they agree on the detail? Greece has given way on many of the key points such as VAT hikes and pension reform. There are still a whole range of potential sticking points. However you would think that if agreement can be reached on the overall numbers, and there is a feeling that the Greek government is committed to delivering, then the details can be worked through in detailed negotiations. Greece has agreed to proceed with some VAT and pensions measures next week, as a sign that it is prepared to get on with it.
How much money would be needed? Debatable. Greece has put forward a figure of €53.5 billion. Figures of up to €70 billion to €80 billion have been rumoured to cover a three-year deal. Both sides will want the impression that enough has been put in, but the problem is that this adds further to Greece’s huge pile of debt.
So what about the banks? This could be messy. The banks have now been closed for a couple of weeks, which has caused considerable wider economic damage. However, the financial system itself is now under strain and, despite imposing a limit of €60 on daily withdrawals, the banking system is running out of cash. The ECB will need a clear sign of political progress at the weekend, presumably the start of formal talks agreed by the finance ministers, if it is to release more cash.
Even if this happens, it is not clear how much extra the ECB would supply in the short term. The reopening of the banking system would be gradual and withdrawal limits would remain in place for a prolonged period, though they might gradually be eased.
As well as cash for liquidity, reports now say the Greek banking system needs new capital, possibly in excess of €10 billion (capital is the mandatory cash buffer a bank must keep on its balance sheet). This might come from the European Stability Mechanism, the same body which would provide the main bailout cash.
However it would be accompanied by conditions, likely to include the restructuring of the sector and a reduction in the number of main banks from four to two or three. There is a risk that creditors, including big depositors, could be “ bailed in”, in other words lose some of their money as part of a restructuring.
Will Greece get debt relief? Greece is pushing for some kind of commitment on debt restructuring and has support from the IMF and the European Commission. Politically, this is sensitive in Germany, the biggest creditor , and in a number of other northern European countries, where there is strong local opposition, among the poorer member states and in the other bailed out countries, including Ireland.
There are a number of ways debt relief could happen, including a further stretching out of maturity terms and repayments. Greece has also proposed that some debt owed to the ECB be taken over by the ESM, the new rescue fund, which would allow it to restructured as well.
The most that might come this weekend is some kind of political commitment. As Greece’s debt-to-GDP ratio will soar to more than 200 per cent if it gets the bailout, serious issues arise about repayment, affordability and the impact of all this on any potential return to the markets in a few years.