Dubai: The Greek government’s overtures to its creditors on Wednesday indicating its willingness to accept many of the terms of a bailout package that it had rejected earlier has raised the hopes of a new deal, averting the crisis.
Despite some ongoing deliberations between Greece and its creditors well past the deadline to pay the €1.6 billion (Dh6.5 billion) loan to the IMF, some analysts see numerous hurdles on the way to a new deal between Greece and its creditors.
As widely expected Greece did not pay the €1.6 billion to the IMF on Tuesday but asked for an extension of the deadline which the IMF said it will consider. Greece is not in default but “in arrears”, limiting it from using the IMF’s resources until the arrears are cleared, a process which could take weeks.
In a surprise move, late on Tuesday before the official expiry of its second bailout programme, Greece asked the European Stability Mechanism (ESM) for a €29 billion loan to cover its domestic and external debt obligations for the next two years, a restructuring of its outstanding debt and an extension of the current programme until this loan is in place.
Although no extension is granted yet, the Eurogroup is clearly considering the new proposals and the new terms of the bailout which analysts say could be harsher than the previous.
“It is unlikely that the IMF will grant an extension to Greece’s missed deadline. While the other official creditors have the right to ask for an acceleration of their obligations, it might not be in their interest to do so. As capital controls are aggravating the situation for the Greek population, the government is under domestic pressure to find a solution. However, the terms of a new bailout programme are likely to be harsher than those on the table last week,” said Eirini Tsekeridou, fixed income analyst at Julius Baer.
Deeply sceptical
There remain considerable hurdles to any comprehensive new deal. Greece’s existing bailout package expired at midnight on Tuesday, meaning that an entirely new arrangement would have to be negotiated. Officials from the European Union, Germany and the IMF, among others, remain deeply sceptical about whether the Greek government would follow through on commitments to the kinds of changes the creditors are seeking. And there has been little progress in addressing the issue underlying Greece’s troubles: whether and how the country should be granted any reduction in its debt payments.
Sceptics say the new round of discussions that has opened between Greece and its creditors could at best postpone the inevitable exit of Greece from the euro because of the visible reluctance Greece to keep to its commitments and increasing frustration among its creditors. Some even compare the current round of negotiations to those ahead of the collapse of Lehman Brothers in 2008.
“There is exactly the same feeling into the air as before the Lehman default. I remember being almost alone in thinking Lehman would fail to secure their life, but market and Fed kept seeing solutions last minute,” said Steen Jakobsen, Saxo Bank’s Chief Economist.
Some analysts even suspect that the creditors along with Germany want a leaner and more disciplined Eurogroup that supports a stable currency.
“It could be reasonably argued that there is growing evidence to suggest that there is a campaign to drive Greece out of the Eurozone. Much of this, it could be said, is being driven by Angela Merkel’s German government, which it would seem is seeking to hold Greece up as an example to other peripheral Eurozone member states. The firm message coming from Merkel, who has keen and intuitive sense of the public mood in Germany, appears to be that to remain in the Eurozone, countries must come into line, accept all the terms and conditions, or face the consequences,” said Nigel Green chief executive of deVere Group.
According to Green there are a growing number of voices arguing that a Grexit could, ultimately, be a positive and logical next step, and that the possibility of a smaller Eurozone made up of fewer, more stable member states is indeed preferable — and that perhaps this is actively being sought.
