Eurozone: A Pyrrhic 'no'?

The ‘no’ vote in yesterday’s referendum seems to have strengthened Tsipras’ position. However, what looks like a stunning victory could quickly become a Pyrrhic ‘no’. The Greek people yesterday sent a strong message to the rest of Europe: a ‘no’ against austerity. According to the latest results, more than 60% of the Greek people said ‘no’ in the referendum. Officially, this ‘no’ was against a proposal from Greece’s creditors on 25 June to extend the bailout agreement against certain conditions. Whether the ‘no’ was also a vote against Greece’s membership within the Eurozone will never be clear. Ahead of the referendum, there was lots of speculation on what would happen if…now that there is clarity on the outcome of the referendum, the only thing that is clear is that nothing is clear. Only the coming days and hours will show what all involved players are really up to. In our view, the most likely next step is that the Greek government will want to return to Brussels to negotiate a new package with its Eurozone creditors, now backed with a strong mandate of the Greek people. It is hard to tell what the new demands or proposals of the Greek government will really be. The range of demands varies highly between different members of governments, ranging from a democratic change for Europe to no new austerity. The only element that will clearly be in any new Greek proposals is debt relief. In our view, the Eurozone will wait for Greece to make the first move. Initially, the Eurozone will insist on the technical issue that there no longer is a Greek bailout programme and that the Greek government would have to apply for a new programme. Interestingly, the German parliament and other parliaments would have to agree to a start of new formal negotiations. In this regards, it is noteworthy that new negotiations with Greece could also put the Eurozone’s inner stability to a test. It will not be easy to find a common strategy for any new negotiations that will be embraced by all Eurozone countries. Still, even if it is hard to see that the other Eurozone countries will give their Greek colleagues a warm welcome and that new negotiations are more fruitful than over the last five months, the outcome of the referendum will push the rest of the Eurozone to at least start talking. In theory, a compromise could be possible. A deal with less austerity but serious reforms, including tackling corruption and tax evasion, in Greece, obviously, would be the best outcome. Such a deal could even include some debt relief, but at the end of the ride and not upfront. This, however, would require that all parties involved could jump over their own shadows. In particular, the bad blood created by sometimes excessively inadequate language will be a large liability for any new negotiations. While politicians in the Eurozone are preparing for possible new talks, it is once again up to the ECB to do the dirty work. Today, the ECB will have to decide on what to do with ELA. Apparently, the Greek central bank applied for an increase of ELA. The ‘no’ has not made the ECB’s life any easier. With every step that Greece is moving closer to total default or even a Grexit and Greek banks are losing deposits, it will be harder for the ECB to label Greek banks as solvent, and thereby eligible for ELA. In our view, the ECB will not be the one pulling the trigger on Greece. As long as Eurozone politicians will signal their willingness to negotiate with Athens, the ECB will keep ELA at its current levels – even if it will create a bigger headache in Frankfurt every day. Still, this strategy will come to an end on 20 July. If Greece is not able to reimburse the ECB and would default on the bond, it is very hard to see the ECB continuing ELA. All in all, the ‘no’ vote in the referendum will lead to the expected uncertainty. At the current junction, the ‘no’ vote is not (yet) a first step towards a Grexit. Even if Eurozone politicians won’t have a huge appetite to talk to possibly triumphant Greek counterparts, they will never refuse initial talks. How such negotiations will end is hard to tell. A lot will depend on how ready to compromise both the Greek government and the other Eurozone governments are. We still think that eventually a sustainable compromise can be reached. However, the risk for a Grexit has never been higher than today. To a large extent, the current situation brings the Eurozone and Greece back to square one. Square one as it looked like in January: the Greek people have voted against austerity, the Greek government wants debt relief from its Eurozone peers and the Eurozone has troubles finding a united reaction. The big difference with January, however, is that lots of bad blood is on the floors, Greek banks are closed and Greece does not have a bailout programme. These three factors clearly do not argue in favour of a strong Greek position vis-à-vis the rest of the Eurozone. Did Tsipras celebrate a Pyrrhic ‘no’?

Eurozone - Still united in diversity

The final stage of the Greek saga debuted along the lines of the recent past. Neither side seems in a hurry to bow to the counterparty’s requests. Having irritated EU Commission President Juncker late last week by quipping that the EU suggestions were irrational, on Tuesday the Greek PM Tsipras finally submitted his new proposal to the institutions. As reported by Kathimerini, it foresees an increase in the primary surplus targets to 0.75% of GDP (from 0.6%) for 2015 and to 1.75% (from 1.5%) in 2016 and an upward adjustment to its three-rates original proposal. The Commission’s first reaction was a cool one, focusing on the fact that the proposal contained ideas already rejected in the past rather than on the adjustments to the primary surplus targets and on the new VAT rates. Unsurprisingly, Greek Finance Minister Varoufakis was also dismissive as he defined last week’s creditor proposal a return back to square one, as if the negotiations had not happened. In our view, even if the manners and procedures of this never-ending process will definitely not win any beauty contest, just looking at the sheer facts it seems as if at least headline numbers and targets have converged again – a tiny bit. The issue is not so much numerical targets but rather how to reach them. This is where the biggest discrepancies between Greece and the rest of the Eurozone still exist. The other, probably most controversial issue is the Greek pension system. While the Eurozone demands an overhaul of the system to make it more sustainable, the Greek government refuses any changes. Even if both sides are still well apart, these discrepancies look bridgeable; at least in normal European circumstances. However, the Greek crisis has long ago entered new dimensions. Therefore, it looks as if an old negotiation pattern is currently emerging again: when progress at the technical level failed to materialise, the negotiation table is shifted to the top politicians. Looking at the key players, it seems as if we are reaching the final stage of the negotiations; at least for a short-term solution. After negotiations at the wider European level, including the IMF, it again seems to come down to another Greek-German showdown. These two government leaders will have to decide whether they can pour more water into their wine and still serve it at home as an exclusive drink and not as a cheap spritzer. In this light, observers were yesterday eagerly awaiting a meeting between Tsipras and Merkel at the margins of an EU-Latin America summit in Brussels. However, the two left main actors of the Greek crisis continued their game of chicken, now even at the level on whether or not a meeting would take place. After denials and opposing news, Tsipras and Merkel, supported by French president Hollande, finally met late last evening. After two hours, the meeting was concluded with only one official statement: government leaders had a good exchange of views in a constructive atmosphere. The negotiations between Greece and the three institutions will be continued with high intensity in the coming days. For us, it is hard to tell what really happened during yesterday’s meeting. It all looks as if the psychological game of who will blink first continues.

ECB meeting - Taper tempering

As expected, the ECB did not announce any new policy measures at today’s meeting. While generally speaking, today’s meeting was one of those meetings which do not necessarily require a press conference, ECB president Draghi sent two main messages: the fragile start of a cyclical recovery does not justify any tapering speculations, and, the ECB will not pull the trigger on Greece. The ECB’s macro-economic assessment remained cheerful and almost self-congratulating. The tone on the recovery has become somewhat more positive and risks to the outlook for growth were for the first time in a long while described as “more balanced”, though still at the downside. The ECB staff projections remained virtually unchanged compared with the March projections, forecasting GDP growth in the Eurozone to come in at 1.5% this year, 1.9% next year and 2.0% in 2017. The positive tone was only slightly offset by Draghi’s remarks that the recovery had lost some momentum in the second quarter, which explained why the ECB currently only expected the recovery to “broaden” but no longer to “strengthen”. Cruising along. Interestingly, the ECB takes lots of comfort from stronger domestic demand. In our view, continued deleveraging and still high unemployment make banking on domestic demand as a sustainable growth driver a risky strategy. As regards inflation, the slight uptick of oil prices has pushed up inflation projections for this year to 0.3%. For 2016 and 2017, inflation projections remained unchanged at 1.5% and 1.8% respectively. The ECB’s current economic and inflation outlook could give rise to speculations about an earlier-than-expected end of QE. To tackle any of these speculations, Draghi emphasized several times today that the ECB’s macro-economic outlook was conditional on the full implementation of QE. Moreover, there were three even stronger signals from Draghi that any tapering discussions were premature: 1) the cross-checking part of the introductory statement included a new sentence reading that “…confirms the need to maintain a steady monetary policy course, firmly implementing the Governing Council’s monetary policy decisions”; 2) Draghi said that even if the inflation projections were close to the ECB’s definition of price stability, the ECB was nowhere near fulfilling its target and could even add to the monthly purchases; and 3) any exit strategy was a “high class problem” and not yet discussed by the ECB. Even possible bubbles or misallocations in financial markets were no reason for the ECB to adjust QE. Draghi clearly stated that any possible negative effects from QE had to be tackled by supervisors but not by monetary policy. However, despite trying to temper tapering speculations, Draghi is still struggling to give clear guidance. The question on whether QE could be ended before end-September 2016 if inflation expectations are back at where the ECB wants them before, was unanswered. The story of the hour (or better: days, weeks, months and years), is clearly Greece. Earlier today, some details of the latest – some even call it the last – take-it-or-leave-it offer from Greece’s Eurozone creditors had surfaced. According to media reports, the Eurozone would be willing to adjust Greece’s fiscal targets for the coming years. Instead of a permanent primary surplus target of 4.5% starting next year, Greece would be allowed a softer path, gradually tightening austerity screws from a surplus of 1% this year to 3.5% in 2018. However, it is unclear how the Eurozone creditors want to stick to the same debt targets without debt restructuring when fiscal targets are softened and growth has been weaker. Here, Draghi – who initially didn’t want to comment on Greece at all – said that the ECB wanted Greece to be in the Eurozone but that there was a need for “a strong agreement”. Greece was a viable economy if the right policies were implemented. The ECB was in favour of a strong agreement which provided social fairness and economic growth but also fiscal sustainability and financial stability. Answering to questions on ELA and possible additional haircuts on Greek bonds, Draghi remarked that the ECB would stick to its rules-based approach and the different rules applied to ELA and the ECB’s collateral rules. It is obvious that the ECB will not pull the trigger on Greece autonomously. As long as there is the political will from all sides to find a sustainable agreement, the ECB will continue with its current ELA and liquidity stance. All in all, today’s press conference showed that the ECB is aware of the upcoming tapering speculations and clearly wants to temper them. However, more forward guidance and communication streamlining will be needed in the months to keep speculations at bay. Carsten Brzeski

Eurozone - Bluff or u-turn?

The next act of the Greek crisis has all the elements for a new blockbuster: conciliation, refusal, only the happy end is still far from certain. What a day. Yesterday, events in the Eurozone unfolded at a breakneck pace. First, the Greek government submitted an official request to extend its bailout by six months. More than an hour later, the German government reacted with a strict refusal. Are the Germans a party pooper? This was the first reaction to the series of events. Now that Greece finally came across and let go earlier positions regarding the bailout, what made the Germans refuse it? To understand the German refusal, one has to apply lots of semantic skills and European institutional memory. In the official Greek letter, Finance Minister Varoufakis asked for an extension of the “Master Financial Assistance Facility Agreement” (MAFA). This is only one part of the bailout programme, the laying out of the financing scheme. The so-called Memorandum of Understanding (MoU) which includes all reforms and policy requirements was not mentioned at all by Varoufakis. While some claim that accepting the MFAFA automatically includes the MoU, there is a legal escape clause stating that the MoU should be applied unless otherwise specified. In the eyes of the German government, not mentioning the MoU is another Greek provocation. Moreover, the Greek government’s letter has little concrete commitments, except for the promise to only implement fiscally-neutral new policy measures. For the rest, the letter suggests that the role of the Troika should be redefined as well as further financial agreements. As such, the letter can be interpreted as the request for a bridging facility with the only goal of renegotiating the bailout programme but little concrete commitments. In the eyes of the German government, the Greek letter could just be a Trojan horse, bringing more cumbersome discussions and fights to the Eurozone. The current dispute is only at first glance a semantic dispute. In fact, the Greek government’s letter invited the view that it is only a smart attempt to extend the loan while escaping full conditionality, trying to keep Greece and Greek banks afloat with ECB support. The positive interpretation of the Greek letter is that it is the first substantial concession of the Greek government and that a real compromise is within reach. When Eurozone finance ministers meet today for a special meeting in Brussels, the Eurozone will get its next face-off. A face-off with an open end: either the Greek government will go all the way and convince its Eurozone partners, particularly the ones where national parliaments would have to agree to an extension of the loan, that its commitment is credible, or the German government was right and yesterday’s letter was only a bluff. In the latter case, any happy end would be deferred to a distant future.

Merkel, growth, Greece and TGEFKAT

The German economy ended a volatile year on a very strong note. According to the statistical office’s first official estimate, the economy grew by 0.7 % QoQ in the final quarter of 2014. This is more than the first estimate for the annual growth number had suggested. Compared with the last quarter of 2013, the economy grew by 1.6%. Details of 4Q GDP will only be published at the end of the month but available monthly indicators and the statistical office’s statement suggest that domestic demand was the main growth driver. A clear sign that lower oil prices have found their way into consumers’ pockets. Looking ahead, the German economy looks set to continue surfing on a wave of economic well-being. With the strong labour market, wage increases, low energy prices and extremely low interest rates, consumers should continue to spend it. At the same time, the weak euro will definitely benefit German exports, letting them return as a growth engine. With a statistical overhang of 0.5%, less public holidays and the external stimulus package our current GDP growth forecast of 1.5% for 2015 looks almost pessimistic. The big unknown for 2015 remains domestic investment. While low interest rates and comfortable liquidity positions of many corporates should normally bode well for investment, uncertainty about the future of the Eurozone and continued geopolitical tensions could still dampen investment growth in 2015. While the German economy is doing what it is supposed to do (ie growing), the German government can concentrate on the conflict with Greece. After the disappointing Eurogroup meeting, hopes on a compromise had received a clear hit. However, yesterday evening at the European leaders’ meeting in Brussels, comments from German chancellor Merkel surprisingly opened the door for Greece. Merkel signaled German willingness to compromise, stressing the importance of rules and being a reliable partner in Europe. Combined with German media reports and official statements, the German government could eventually become flexible on the primary surplus target for Greece and conditions of the planned privatisiation. However, red lines the German government is not willing to cross are clearly debt forgiveness, supervision and credible commitments. This means that Greece would have to swallow some bitter pills like an extension of the current bailout programme and cooperation with the Troika. In this context, it does not surprise that German media yesterday night reported that a group of experts from the three institutions formerly known as The Troika will investigate possible overlaps between the current bailout programme and the wishlist of the new Greek government in the coming days. Whether Merkel’s comments are really a substantial change in the Eurozone’s negotiation chaos and an invitation to compromise or just a precautionary measure so that she cannot be blamed if things go completely wrong, remains to be seen. One thing is at least for sure: with Merkel’s moves, the pressure is now on Greece.

EU Summit - all is calm but not all is bright

The last EU summit of the year turned out to be a tranquil pre-Christmas meeting. After finance ministers’ decisions on Greece and bank supervision, EU leaders slowed down their reform efforts. The famous roadmap towards further integration of the Eurozone has been delayed once again. In the tranquil pre-Christmas mood, some EU leaders might have started singing Christmas carols last night. However, unlike in the Christmas song “Silent night, holy night”, all is calm but not all is bright.


What initially was meant to be the big break-through for the Eurozone and course-setter towards a “genuine economic and monetary union”, turned out to be a tranquil year-end summit. Already ahead of government leaders’ arrival to Brussels last night, finance ministers had cleared the way towards a sunshine and roses evening. The EU and the Eurozone have ended the year with the typical mixture of delivering the bare minimum without overachieving a single tiny bit.

The first bare minimum was the break-through on Eurozone bank supervision. After another long meeting, European finance ministers agreed on a single supervisory mechanism for the Eurozone. Non-Eurozone countries can join on a voluntary basis. Supervision of the biggest banks (with balance sheets above 30bn euro or above 20% of a country’s GDP) will be conducted by the ECB, in cooperation with national supervisors. This new Single Supervisory Mechanism (SSM) will become effective in March 2014 at the earliest. Further delays cannot be excluded.

The SSM is meant to be the first step towards a fully-fledged banking union which should break the vicious link between sovereigns and financials. Remember that officially the ESM will be allowed to directly recapitalize banks once the SSM has become effective. Obviously, this will now have to wait at least until March 2014. A time line which clearly pleases the German and other core countries’ governments which still are opposing direct bank recapitalisation for legacy assets, or in other words: core Eurozone countries are not yet willing to put taxpayers’ money on the table to pay the bill of peripheral countries’ financial mistakes of the past. Further steps to complete a real banking union, in theory, would have to be a bank resolution mechanism and a deposit guarantee scheme. Up to now, Eurozone countries are still far off from any agreement on these two issues. Next year, the European Commission will present a first proposal for a bank resolution mechanism. All of this means that after the usual post-marathon meeting euphoria, the decision on the SSM is clearly not a game changer for the Eurozone.

The second bare minimum finance ministers delivered was the final green light to pay the next loan tranche for Greece, amounting to 49.1bn euro. The disbursement will be made in several tranches. The first 34.3bn euro will be paid out in the next days. The rest in the course of the first quarter, partly conditional to further Troika assessments. As we have often said in the past, yesterday’s green light for Greece clears another hurdle but it was not the last hurdle.

Agreement on Greece and the SSM, however, masks that there still is lots of disagreement on other crucial topics, not only on direct bank recapitalisation. Let’s not forget that this week’s summit was intended to even go further and to deliver a roadmap towards more or “genuine” integration. However, last night, EU leaders did not agree on anything else. EU president Van Rompuy’s roadmap had been downgraded to a background document. Binding contracts between countries and institutions to ensure structural reforms, financial incentives for structural reforms, a mechanism to absorb asymmetric shocks, harmonization of tax policies and labour markets? All these issues have been postponed until at least the summer of 2013. More visionary ideas which could have strengthened prevention by reducing national sovereignty like a Eurozone finance minister have disappeared entirely.

The crisis year 2012 comes to a close. It is a tranquil, almost conciliatory, year-end.Yesterday’s agreements on Greece and the SSM are already an achievement. Particularly the SSM is something no one had on the radar screen at the beginning of the year. Within the last year, next to the never-ending fire fighting in Greece, the Eurozone has managed to agree on a fiscal compact with mandatory national debt breaks, start the ESM and set up a Eurozone-wide banking supervision. Even if this week’s summit clearly disappointed on the vision thing, showing that there still is lots of disagreement, let’s try to be mild and not too critical: the Eurozone is still alive and it is moving into the right direction, even if it sometimes moves at a very slow speed. Enjoy the summit-free time, it won’t last for long.

Eurogroup decides on Greek fudge

Eurozone finance ministers finally agreed on measures to grant Greece two additional years for austerity and structural reforms. These measures remain highly conditional and are no guarantee to avoid debt forgiveness in the future.


During last night’s Eurogroup meeting, the Eurogroup gave the principle green light to pay out the next tranche of the bailout programme amounting to 43.7bn euro. At the same time, the Eurogroup agreed on several possible measures to grant Greece two additional years for its austerity measures and structural reforms.

The possible measures are the following: i) a lowering by 100bp of the interest rate charged to Greece on the bilateral loans of the first bailout package; ii) a lowering by 10bp of the guarantee fee costs paid by Greece on the EFSF loans; iii) an extension of the maturities of the bilateral and EFSF loans by 15 years and a deferral of interest payments of Greece on EFSF loans by 10 years; iv) a commitment by Member States to pass on to Greece's escrow account, an amount equivalent to the profit the ECB and national central banks make on their Greek bond holdings under the SMP programme.

To benefit from the above measures, however, Greece will also have to play its role. In fact, the above measures will only be implemented gradually and only under certain conditions to restore debt sustainability. To ensure Greek debt sustainability without debt forgiveness, the Eurozone agreed on a series of measures. The escrow account has become more important as not only all privatization revenues have to be transferred to this account but also the “targeted primary surplus as well as 30% of the excess primary surplus”. Moreover, a debt-buy-back could also be part of restoring debt sustainability. However, this programme is anything but certain as the rather vague official formulation of “the Eurogroup was informed that Greece is considering certain debt reduction measures in the near future, which may involve public debt tender purchases of the various categories of sovereign obligations. If this is the route chosen, any tender or exchange prices are expected to be no higher than those at the close on Friday, 23 November 2012.”

Taking all these measures together, the Eurogroup provided the expected fudge to keep Greece in the Eurozone. It is obvious that even the Eurogroup does not expect that this was the last word on Greece. Even if debt forgiveness was not mentioned, the sentence that Eurozone countries will consider further measures to ensure that Greek debt can reach 124% of GDP in 2020 and a level “ substantially lower than 110% in 2022” is rather telling.

At first glance, the political will to give Greece two additional years for austerity and reforms has finally been substantiated. However, as so often in the past, there are still some elements in the Eurogroup’s decision that look clear and good at the end of a long Brussels’ night but which could lose their congeniality after sunrise. Here are just a couple of them: the Eurogroup’s commitments remain highly conditional, some national parliaments (like the German Bundestag) still need to agree to the measures and the debt-buy-back scheme looks anything but certain. Chances are high that this month’s meetings were not the last night-breaking discussions on Greece.

After three meetings this months and a total of more than 24 hours of discussing and negotiating, the Eurozone countries have put their money where their mouth is. The political will to reward the Greek austerity and reform measures has already been there for a while. Now, this political will has finally been supplemented by financial support. However, it is clearly not a carte blanche for Greece but rather a very tight leash.

Eurozone - Two more years

Last night’s Eurogroup meeting paved the way for Greece to stay in the Eurozone. Ministers decided on two additional adjustment years for Greece. Finding the money to fund these extra years, however, was postponed.

Last night’s Eurozone finance minister meeting was finally a meeting that ended before mid-night. European experience, however, also shows that shorter meetings are normally a sign of significant disagreement and that crucial decisions have simply been postponed. Yesterday’s meeting adds evidence to this experience. 

As expected, ministers agreed that Greece could have two more years to meet its fiscal target, shifting the goal of having a primary budget surplus from 2014 to 2016. These two years are a kind of reward for the Greek government. Notably, the official Eurogroup statement is full of praise for the undertaken efforts by the Greek government. Interestingly, the statement also refers to the efforts taken by citizens, a gesture of acknowledgement of the social impact of austerity measures and structural reforms. 

Of course, more time also means more money. Two additional years lead to an immediate funding gap of around 30bn euro which needs to be filled but also put the debt sustainability target of a debt ratio of 120% of GDP by 2020 at risk.

As regards the funding gap, no decision was taken last night. Eurogroup president Juncker announced that this issue should be discussed at another meeting on 20 November and at the latest on 28 November. These dates will give governments the chance to get the green light from national parliaments for changes to the Greek programme. As regards debt sustainability, media reports mentioned a debt ratio of 140% of GDP in 2020 in the new troika report.

The race on how to finance the new 30bn euro and how to restore debt sustainability is still open. Option range from a clean-cut third bailout package for Greece to debt forgiveness. In our view, probably none of these two options will eventually be chosen. The most likely outcome of the next two weeks should be a typical Eurozone fudge: lower interest rates on the current Greek loans and an extension of the loans. Imagination or creativity has no limits. Yesterday, Juncker offered another fudge, saying that the date of bringing the debt ratio down to 120% of GDP could simply be delayed by two years. But let’s be clear, even such a Eurozone fudge would be a covert Official Sector Involvement as rescheduling of debt obviously also has its costs.

Yesterday’s meeting was another small step in the Eurozone saga. The political will to keep Greece in the Eurozone had already emerged over the summer. Now, it looks as if all other elements have to fit into this political will. We remain confidence that the next tranche will be paid and that the Eurozone will also find an agreement on how to bridge the new funding gap in the next two weeks. Needless to say that the final decision on the next Greek tranche, a new financing gap and debt sustainability will not be the end of the matter.

Greek days have started

With three meetings in less than two weeks, Eurozone finance minsters hope to finally strike a deal on giving Greece more time for its adjustment.

The decisive phase for Greece has started. Yesterday, Eurogroup president Juncker announced an unscheduled meeting of Eurozone finance ministers on 8 November. With the scheduled conference call of ministers on 31 October and the already planned Eurogroup meeting on 12 November, ministers will have three meetings to decide on further steps for Greece. Even if the Troika report has not (yet) been officially released, it seems clear that the Eurozone is willing to give Greece somewhat more time for the adjustment.

More time, however, would eventually also cost more money. According to earlier market reports, a two years delay of the austerity measures could lead to a financing gap of between 15bn and 30bn euro. This financing gap would have to be closed to keep the IMF on board of the Greek rescue and to be able to pay out the next tranche of the loan. Of course, always assuming that Greece fulfills its obligations of the structural reforms and austerity measures.

Generally speaking, more time for Greece could be “bought” by two main options: a third bailout package or debt forgiveness. This is what according to media report is also proposed by the Troika. However, none of these two options is politically attractive for most Eurozone countries as both options would cost tax payers’ money. Therefore, it did not come as a surprise that the German government directly and indirectly tried to rule out both options, with opposition against debt forgiveness being much louder than against a third package. Particularly, German chancellor Merkel seems to be – very gradually – giving up opposition against a third aid package. While a third Greek bailout would probably not be supported by all of her own coalition’s lawmakers, Merkel could get parliamentary support from the biggest opposition party, the social democrats. Less than one year ahead of the federal elections, Eurozone matters could increasingly be dominated by German domestic politics.

Debt forgiveness (aka Official Sector Involvement) would, according to the German government, be against the principle of no-bailout principle (for the government) and against the principle of no-monetary financing (for the ECB). While the monetary financing argument remains a strong one for the ECB, the no-bailout argument looks much weaker, particularly in light of all rescue actions of the last years. As a consequence, some kind of OSI should not entirely be ruled out. However, it would not come for free for Greece. In our view, OSI or debt forgiveness would come with even more strings attached than the current programmes, leading to more and far-reaching loss of sovereignty. The core Eurozone countries would do everything to avoid the impression that OSI is relief for free. Otherwise, other Eurozone peripheral countries could be tempted to ask for the same.

Given the broader consequences of an OSI or debt forgiveness and the limited political appetite in several Eurozone parliaments for a third bailout package, filling the funding gap for Greece will again require some creativity. A possible way out, at least in the short-term, could be a combination of several options like lowering the interest rates on the first two Greek packages and front-loading parts of the funding of the second package. This could again kick the Greek can further down the road.

Letter from Brussels - Bruesseler Baustellen

Als Deutscher in Brüssel hat man es nicht einfach. Nicht nur, dass europäische Nachbarn einen ständig als Euro-Rettungsverweigerer beschimpfen, nur weil man nicht einsieht, dass deutsches Steuergeld ohne Gegenleistung in andere Länder gepumpt wird. Nein, auch weil man sich als deutscher mit Hang zur Ordnungsliebe gerne am Brüsseler Alltag stört. Die Straße vor meiner Haustür wurde dieses Jahr nun schon zehn Mal ausgebuddelt, zugeschüttet und wieder geöffnet. Jedes Mal für einen anderen Zweck. Fragen des „Wieso, weshalb, warums“ werden in Brüssel nur mit Kopfschütteln begegnet. Das ist nun mal so. Eine unübersichtliche, scheinbar chaotische Strategie ohne deutliches Ziel? Das gibt es nicht nur im Brüsseler Straßenbau.

Ähnlich wie in meiner Brüsseler Straße werden auch in der Euro-Krise regelmäßig neue Baustellen geöffnet, geschlossen und wieder geöffnet. Teilweise aber auch ganz und gar vergessen. Manche Wundermittel sind schon wieder in Vergessenheit geraten bevor sie jemals umgesetzt wurden. Andere Maßnahmen werden gerne als alternativlos dargestellt, auch wenn sie nationale Volksvertreter und Bürger mit astronomisch hohen Beträgen konfrontieren. Da überrascht es nicht, wenn viele Menschen mittlerweile krisenmüde geworden sind und sich in populistisch einfache Aussagen wie „Griechenland rein oder raus“ flüchten.

Um den zunehmenden Populismus in der Euro-Krise zu bekämpfen, ist mehr Aufklärungsarbeit gefragt. In den nächsten Wochen wird innerhalb kürzester Zeit über Rettungsschirme, Griechenland und Staatsanleihenkäufe der EZB entschieden wird. Gleichzeitig kursieren Pläne zur Bankenunion und mehr Integration. Das sind viele Baustellen zur gleichen Zeit. Will man nicht das Kopfschütteln der europäischen Buerger ernten, wird es Zeit zu erklären, wie die verschiedenen Baustellen zueinander passen und wie die Strasse irgendwann mal aussehen soll.


Dieser "Letter from Brussels" erschien in der Euro am Sonntag.

Wie a zegt...

...moet ook b zeggen. Kent bondskanselier Angela Merkel dat spreekwoord niet? Sinds vorige week is duidelijk dat Griekenland aan de afgrond staat en financiële steun acuut nodig heeft. De problemen waaien niet meer over. Het Duitse aarzelen heeft de financiële markten letterlijk uitgenodigd ook tegen andere landen te speculeren. Merkel en Duitsland moeten snel kleur bekennen. Niet alleen om de speculatie van de laatste dagen aan banden te leggen, maar ook om een signaal te geven over de toekomst van de euro.

In de hoop de meeste Duitse kiezers, de andere Europese landen en de financiële markten zo lang mogelijk te overbluffen, volgde Merkel de laatste weken een dubbele tactiek. Naar buiten was zij 'Madame Non', die de sjoemelende en onverantwoorde Grieken niet één belastingcent gunde. Maar achter gesloten deuren ondertekende zij elke Europese solidariteitssteun. Alles in de hoop dat de Griekse crisis toch zou overwaaien. Maar de wind waait anders.

Het wordt steeds duidelijker. Financiële steun aan Griekenland is nu alleen een druppel op een hete plaat. De huidige liquiditeitsproblemen camoufleren alleen solvabiliteitsproblemen. Het enige wat Griekenland op dit moment kan helpen, is een Europese blanco cheque voor minstens drie jaar. Alleen zo heeft de overheid de tijd om de economie radicaal te hervormen, onafhankelijk van elke druk van de financiële markten. Daar zou het niet stoppen. Als de Europese landen een blanco cheque voor Griekenland ondertekenen, moeten zij in feite ook bereid zijn dat eventueel voor Portugal, Ierland en misschien Spanje te doen. De geboorte van een politieke unie met transferbetalingen, dat zal in ieder geval de Duitse kiezer, die nog steeds wacht op de beloofde belastingverlaging, zeker niet in dank afnemen.

Bertolt Brecht zei ooit: 'Wie a zegt, hoeft geen b te zeggen, hij kan ook zeggen dat a fout was.' Als Angela Merkel Brecht wil volgen komt er een nieuwe 'a': het toestaan van een ordelijk staatsfaillissement. Dat kan een herstructurering van de schulden zijn of een 'hair cut' waarbij de obligatiehouders een gedeelte van hun vermogen kwijtraken. Niet alleen van Griekenland, maar eventueel ook voor andere landen van de eurozone, met alle mogelijke negatieve gevolgen voor de financiële sector.

Je kán doormodderen en uitstellen, door eventjes te betalen en verder over de toekomst te zwijgen. De problemen verdwijnen daardoor echter niet. Het is tijd voor duidelijkheid. Wordt het 'b' of een nieuwe 'a'? Merkel moet nu beslissen. Niet alleen over Griekenland, ook over de toekomst van de monetaire unie.


Deze column verscheen eerder in het Belgische dagblad "De Tijd".

Das griechische Murmeltier

Von Bill Murray und seinem Film „Täglich grüsst das Murmeltier“ haben wir gelernt, dass in Punxsutawney, Pennsylvania jedes Jahr der Tag des Murmeltiers gefeiert wird. Dieses Jahr grüsst das Murmeltier jedoch aus Brüssel. In regelmäßigem Abstand treffen sich seit Anfang des Jahres Regierungschefs oder Finanzminister, um über die griechische Tragödie zu beraten. Jedes Mal fahren sie nach Hause, in der Hoffnung, dass die griechischen Probleme gelöst sind. Jedes Mal dauert es nicht lange, bevor das griechische Murmeltier wieder grüsst.

Für manche Politiker scheint dieses griechische Murmeltier ein Vielfraß zu sein. Kaum steht das Rettungspaket mit Hilfe von Europa und dem IWF, will Griechenland scheinbar noch mal über die Zinskonditionen verhandeln. Am liebsten schon kommende Woche beim nächsten Treffen der Finanzminister. Warum? Das geschnürte Rettungspaket würde Griechenland im Ernstfall Finanzierungen verschaffen, wenn der Marktzugang abgeschnitten ist. Das griechische Problem ist jedoch nicht Marktzugang, sondern die Höhe der Zinsen. Griechenland ist nun besorgt, dass die Kombination von hohen Zinsen und schwachem Wirtschaftswachstum die Staatsschuld weiter in die Höhe treiben wird. Der befürchtete Schneeballeffekt.

Viele Europafunktionäre fühlen sich immer noch solidarisch mit Griechenland und der Druck auf Deutschland, zinsgünstige Darlehen zu geben, wird in den nächsten Wochen zunehmen. Eine Schuldenexplosion wird sich jedoch auch nicht mit einem kleinen zinsgünstigen Darlehen von den anderen Euroländern so einfach verhindern lassen. Zu schlecht ist die Ausgangsposition und zu weit entfernt ist Griechenland von einem ausgeglichenen Staatshaushalt. Der Zins bestimmt nur den Schmerz, kann aber nicht die Krankheit heilen. Die Heilung muss deutlich von der griechischen Haushaltspolitik und von der griechischen Bevölkerung kommen. Es wird ein sehr steiniger und langer Weg und letztendlich sollte und kann auch eine Insolvenz nicht ausgeschlossen werden.

Im Film endet der ständig wiederkehrende Murmeltiertag erst nachdem die Hauptrolle aus eigenem Antrieb heraus eine grundlegende Wendung zum Guten nimmt. Manchmal ist das echte Leben doch wie im Film.

Dieses Stueck erschien als "Letter from...Brussels" in der Euro am Sonntag.

Communication limbo from Frankfurt

Of course, there was no news on interest rates. The ECB decided to keep interest rates unchanged at today’s meeting. The more interesting part of the ECB meeting was on the collateral framework and the ECB’s communication on Greece.

The ECB’s assessment of the economy and the inflation outlook remained virtually unchanged. Recent indicators have confirmed the ongoing, though shaky, recovery. The ECB still expects the Eurozone economy to grow at a moderate pace in 2010. The only very slight change in the ECB’s assessment came on inflation. Price developments are now expected to remain “moderate” in stead of “subdued” at the last meeting. Despite this little stylistic change, it does not take away the fact that deflation rather than inflation will remain the biggest concern of the ECB in months ahead.

As expected, the ECB announced some changes to its collateral framework. The current crisis threshold for marketable and non-marketable assets at investment-grade level will be continued beyond the end of 2010, except for asset-backed securities. In addition, the ECB will introduce a new graded haircut scheme in January 2011 and will no longer accept debt instruments denominated in other currencies. Haircuts will be gradually increasing and at least 5%. This new system will only be applied to assets rates in the BBB+ to BBB- range and it will replace the current haircut of 5%. More details will only be revealed in July. However, sovereign bonds will apparently not fall under this new haircut scheme. For government bonds falling under the A- threshold, the old 5% haircut would continue. After all the excitement, the actual changes to the collateral framework seem to be less bold than they could have been. Whether this is a missed chance, remains to be seen.

Most time of the press conference was dedicated to Greece. Prior to the Eurozone’s decision on Greece on 25 March, the ECB had been opposing an IMF involvement, sometimes even very outspokenly. Today, Trichet had a few weak moments and did not really succeed in convincingly explaining the ECB’s u-turn. The ECB’s official position now is that it welcomes the statement on Greece. According to Trichet, Eurozone governments had to take up their responsibility and so they did. The presented joint safety net together with the IMF was a workable statement. Interestingly, there still seems to be some differences of opinion regarding the interest rates at which eventual Eurozone loans should be given to the Greek government. Differences of opinion at least with the German government. Trichet agreed with the principle that loans should be given without subsidies and considered market rates at least the interest rates with which other Eurozone countries can get funding in the market. It is doubtful whether Ms. Merkel has the same understanding of market rates.

The ECB’s walk on Greek eggshells has definitely been nothing to write home about. Crystal-clear communication looks different. However, Trichet did everything not to add fuel to the fire. He even remarked that a Greek default “was not an issue”. Anyway, once the dust has settled, the real substantial issues should emerge again. As regards Greece, it will be the Eurozone governments which have to decide and not the ECB.

All in all, denial or not, Greece is keeping the ECB in wait-and-see mode at least until the end of the year. Fiscal tightening and structural adjustment will make deflation not inflation the major worry of the year.

Zeit fuer Idealisten

In findet man Idealisten aller Farben. Flämische Separatisten, die nichts lieber wollen als die Wallonen los zu werden, Wallonen, die sich am liebsten bei Frankreich anschließen würden und natürlich auch die Europäischen Idealisten. Die träumen nun schon Jahrzehnte den Traum der vollendeten Einheit Europas: die politische Union. Macht die griechische Tragödie diesen Traum endlich wahr?

Die Europäischen Regierungschefs haben letzte Woche zugesagt, Griechenland nicht fallen zu lassen. Mit politischem Gewicht wurde ein Sicherheitsnetz unter Griechenland gespant. Ob das reicht, um die Finanzmärkte zu beruhigen bleibt abzuwarten. Die von der Griechischen Regierung versprochene Haushaltskorrektur von 10% des BIP innerhalb von drei Jahren wäre ein neuer Europäischer Rekord. Politisch korrekt heißt so etwas „ambitioniert“, politisch unkorrekt „fast unmöglich“. Griechenland wird also sehr wahrscheinlich noch mal nachlegen müssen und die Regierungschefs können schon mal ihr Sicherheitsnetz anziehen.

In einer finanziellen Rettungsaktion, wie die auch aussehen mag, wird wohl vor allem Deutschland einen großen Betrag stemmen müssen. Nicht viele Bürger würden verstehen, warum in Deutschland gespart werden muss und die Steuersenkungen auf sich warten lassen, man aber gleichzeitig die Zeche früherer Partys anderer Länder bezahlt.

Genau das ist das Problem der Währungsunion. Es gibt keine deutlichen Sperrstunden und keine Ausnüchterungszelle. Die Währungsunion funktioniert nur, wenn es neben der europäischen Geldpolitik auch eine europäische Haushaltspolitik gibt. Eine Haushaltspolitik, bei der Länder deutlich gezwungen werden können, um in einem frühen Stadium ihre Probleme in den Griff zu bekommen. Und einen Strafmechanismus, bei dem nicht die anderen die Zeche bezahlen müssen.

Es gibt viele Möglichkeiten, ein strengeres Rahmenwerk in Kraft zu setzen. Es muss nicht die Europäische Wirtschaftsregierung sein. Es geht aber nicht ohne Machtverlust. Wenn der letzte Akt der griechischen Tragödie beendet ist, kann Europa jedoch nicht einfach zur Tagesordnung übergehen. Die Europäischen Idealisten in Brüssel wird’s freuen.

Dieses Stueck wurde auch in Euro am Sonntag als "Letter from...Brussels" veroeffentlicht

Een Griekse tragedie – bedrijf twee

De Griekse tragedie gaat verder. Eerst was het alleen Griekenland, rampzalig begrotingsbeleid, een torenhoge overheidsschuld en het gesjoemel met de statistieken, die de markten in rep en roer brachten. Nu verspreid zich de onzekerheid op andere Europese landen. Portugal, Italië, Griekenland en Spanje, sommige gebruiken de eerste letters van deze vier landen als beschrijving van de slechte staat van hun overheidsfinanciën, worden nu allemaal in een rijtje genoemd als mogelijke kandidaten voor een staatsfaillissement. In bedrijf twee van de Griekse tragedie is de varkensjacht begonnen.

Echter, George Orwell heeft in zijn boek “Animal Farm” al geschreven dat alle dieren gelijk zijn, maar sommige meer gelijk zijn dan anderen. Vorig jaar kon dat al worden gezegd over de Oost-Europese landen. Toen dacht ook iedereen dat heel Oost-Europa zou gaan ontploffen omdat Hongarije financiële problemen had. Nu bijna een jaar later, is er geen enkel Oost-Europees land failliet, hebben de EU en het IMF wel financiële steun moeten geven aan sommige landen en zijn overheden flink aan het bezuinigen.

Ook de landen rondom de Middellandse Zee zijn niet allemaal hetzelfde. De Griekse situatie wordt door geen ander land geëvenaard. De overheidsschuld in Spanje bedroeg vorig jaar rond 55% van het BBP en in Portugal rond 77%, vergeleken met 113% in Griekenland. Alleen Italië had met 115% van het BBP een “Griekse” schuldprobleem. Ook de begrotingstekorten zijn verschillend. Met bijna 13% BBP had Griekenland afgelopen jaar het hoogste begrotingstekort van alle Eurozone landen. Portugal had een tekort van 8%, Spanje 11% en Italië 5%. Geen geweldige cijfers, maar de Griekse combinatie van hoge schuld en een hoog begrotingstekort is uniek.

Als de storm niet overwaait, zijn er een aantal scenario’s denkbaar. In het meest gunstige scenario blijven de spreads op Griekse, Spaanse en Portugese staatsobligaties hoog, maar kunnen de landen blijven lenen op de kapitaalmarkt. De regeringen implementeren bezuinigings- en hervormingsplannen en verliezen daarmee niet het vertrouwen van de kapitaalmarkten.

Als de bezuinigingen niet (of alleen gedeeltelijk) worden uitgevoerd, of de landen het vertrouwen op een andere manier verspelen, is een technisch faillissement mogelijk. In dit geval zou waarschijnlijk financiële steun van de EU (of zelfs het IMF) volgen. Of met een directe lening of met een garantiestelling voor nieuwe obligaties. In dit scenario zouden de redders uiteraard iets terug vragen, namelijk de bezuinigingen en hervormingen die de landen vrijwillig niet hebben doorgevoerd. De landen zouden in zo’n geval deels economische soevereiniteit verliezen.

In een geval van faillissement zonder steun van derden, zou een land kunnen beslissen zijn verplichtingen voor schuldeisers niet of niet meer volledig na te komen. Argentinië en Rusland zijn voorbeelden hiervan. Het vertrouwensverlies zou echter groot zijn. Een alternatief is bijvoorbeeld het invoeren van een duale munt. Het land behoudt de euro voor internationale transacties en gebruikt voor de binnenlandse economie een nieuwe ‘munt’ in. Zo zou Griekenland of elk ander land in theorie kunnen devalueren zonder uit de Eurozone te moeten stappen. Of daarmee het vertrouwen van beleggers terug kan worden gewonnen, is echter niet duidelijk.

Het laatste scenario is ook het meest onwaarschijnlijke. Namelijk dat een land de Eurozone zou verlaten. Voorzien is deze optie in de Europese Verdragen niet, maar juridisch is het blijkbaar mogelijk; praktisch echter niet. Behalve de spontane bankencrisis die zo’n stap zou veroorzaken (alle Grieken zullen snel hun euro’s over de grens brengen en ook buitenlands kapitaal vlucht weg), maakt het de schulden alleen maar ondragelijker. De Griekse overheid heeft geleend in euro en moet ook in euro’s terugbetalen. Dat wordt met een waardeloze eigen munt onbetaalbaar.

Hoe dan ook, het is vooral aan de landen zelf om met een oplossing te komen. Alleen geloofwaardige bezuinigingen en economische hervormingen zullen helpen om het vertrouwen van beleggers en markten vast te houden. Deze lijn van zelfverantwoordelijkheid volgt ook de Europese Unie. De Europese Commissie heeft vorige week al een eerste stap gezet. De Grieken komen nu min of meer onder curatele te staan van Brussel. De Europese Commissie steunde afgelopen week de Griekse begrotingsplannen, maar maakte ook bekend vanaf nu permanent over de Griekse schouder mee te kijken. Nog nooit eerder heeft de Commissie alle beschikbare instrumenten tegen een land op hetzelfde moment gebruikt. Aangescherpt toezicht op het begrotingsbeleid, duidelijke aanbeveling voor structurele hervormingen en een juridische procedure tegen de creatieve boekhouding. De Europese ministers moeten deze maatregelen nog goedkeuren. Maar anders dan bij eerdere pogingen van de Commissie om landen aan te pakken, is de verwachting dat de ministers de maatregelen niet zullen afzwakken.

In dit tweede bedrijf van de Griekse tragedie zijn de financiële markten bezig met een varkensjacht. Het is echter niet duidelijk wat de markten echt zoeken en het lijkt soms meer op “Animal Spirit” dan op “Animal Farm”. Een daadwerkelijk faillissement? Een Europese reddingsactie? In ieder geval het laatste lijkt niet zo snel te gebeuren. Zelfs als er nu een verzekering zou komen voor Griekenland, zou de speculatie door gaan of Europa ook bereid zou zijn de kolen uit het vuur te halen voor Spanje, niet eens te denken over Italië. Economieën of overheidsfinanciën kunnen niet binnen een dag van koers veranderen. Geen regering kan zijn begrotingstekort binnen een week van 13% BBP naar 3% BBP terugbrengen. Dat is echter wat de financiële markten op dit moment blijkbaar verwachten. De strategie van de andere Europese landen richting Griekenland, maar ook richting Spanje en Portugal lijkt op dit moment heel duidelijk: het is jullie probleem en niet ons probleem. Als andere landen nu al zouden bijspringen om te helpen, zou dat een verkeerd signaal geven. Europa kan op dit moment niet meer veel doen, dan harde taal te gebruiken. Het tweede bedrijf van de Griekse tragedie was de varkensjacht. Het laatste bedrijf moet nog worden geschreven. Hoewel wij nog steeds een “happy end” verwachten, kan de spanning in eerste instantie nog oplopen.