Europe’s eurozone Ministers of Finance are planning to give their blessing to a third bailout for Greece; if this fails, Greece will be expelled from the eurozone, albeit temporarily.
The emergency summit today, Sunday 12th July, resulted in the eurogroup’s willingness to start negotiations on a third loan of up to €86 billion for Greece, provided the Greek government approves by Wednesday, July 15, a budget that raises tax revenues, hikes VAT rates, reduces pensions and puts limits on early retirement schemes.
If Greece meets these conditions, the German parliament will meet on Thursday to allow Angela Merkel and her Finance Minister Wolfgang Schaeuble to open talks on a third bailout, with the eurogroup ministers meeting again on Friday formally to start negotiations with Greece.
If the austerity measures are not agreed by the Greek parliament, the eurogroup plan is to offer Greece a temporary exit from the euro so that the parties can start to restructure Greece’s current debts. This does not yet have the approval of all eurozone ministers, nor is it known which ones disagree.
The eurogroup has noted the possibility of a programme to ensure funding requirements of €82 to €86 billion, with €86 billion being at the top end of expectations; the IMF for example went as high as €70 billion but the needs of Greece’s banks are urgent, figures of up to €25 billion are being pushed around the table just to refinance the banks or to pay for any bank that collapses.
The third bailout of €86 billion, when added to the current loans of €240 billion since 2010, leaves Greece economically unable to progress unless loan renegotiations include drops in interest rates and long extensions to repayment periods, coupled with a complete turnaround in Greece’s economy and its way of doing simple things like collecting tax.
The eurozone ministers continue to harry Greece for at least some movement on the privatisation of state assets and wants Greece to make some effort to modernise its economy but the trust is gone after promised have been broken and much of the EU money shovelled in Greece’s direction has not been used sensibly, like in Portugal, much of the northern states' largesse has been trousered by those adept at spotting a better use for free money.
Since the crisis started Greece’s economy has shrunk by a quarter, unemployment has soared to over 25% and 50% of Greece’s youngsters have no job.
If Greece follows the proposed austerity rules, the eurogroup says still it can look at extending the grace period on loans but Greece already has a better deal than Portugal which is paying more for loans over a shorter redemption period.
If Greece cannot bring itself to make the changes needed, the eurogroup will force a temporary Greek exit from the eurozone along with possible restructuring of its debt.
The already imploding Greek banking system has of course got worse with money flowing out of the country and the need to limit withdrawals from ATMs to €60 per customer per day.
This at least has brought a degree of urgency and the eurogroup is "aware that a quick decision on a new programme is a condition that will allow the banks to reopen" and that the speed of the decision will be essential to prevent the total funding exceeding €80 billion.
Meanwhile, Greece is sinking fast with €7 billion needed by July 20 to pay the European Central Bank, and €12 billion needed by mid-August for another ECB payment.
The main anti-Grexit country is France that sees the European project starting to unravel if Greece is allowed to do its own thing outside the euro.
"There is no such thing as temporary Grexit, there is only a Grexit or a no Grexit. There is Greece in the eurozone or Greece out of the eurozone. But in that case it's Europe that retreats and no longer progresses and I don't want that," said France’s president Francoise Hollande.
The United States has called for a deal to be done and has expressed deep concern at the geopolitical consequences if Greece was allowed to fail.
