What now, Tsipras?
The payment schedule on the Greek sovereign debt looks pretty full as of now. First, Greece will have to pay 200 million euro back to the IMF, come May 1. And then in June, there are a bunch of new payments to the IMF worth a total of 2.5 billion. Those are installments that Greece received from the IMF as part of the earlier aid package.
Christine Lagarde, the IMF chairlady has made it clear that she'll insist that the payments be made on time. For the last three decades, the IMF has never given a single day of deferment to their debtors. There hasn't been a single case of a developing country requesting such, respectively. Greece would be the first if they dare do that. But even so, the IMF doesn't look likely to grant the request. In other words, there'll be no exceptions - because they've got strict rules, and they don't see a reason to make a compromise with them.
The ECB is also amping up the pressure. Mario Draghi, the ECB chairman is already using terms like, "a rule-based institution" to characterise that institution. However, if past experience is any guide, the rules could often be interpreted in many ways. Many critics believe the ECB doesn't have a mandate to buy state bonds en masse. This of course didn't prevent Draghi from flooding the financial markets with 60+ bn euro.
As per their own rules, the ECB didn't have the right to accept the Greek state bonds as compensation, since Greece's fiscal ratings had already reached the bottom. There was a time when this rule could be bypassed through exceptions that could be hastily voted and approved. But after Tsipras came into office, the ECB decided to backtrack on their initial decision, and cut Greece's way to the important financial markets.
The ECB now explains they don't expect the Greek reform program to be successful. Since the Greek banks were cut off from direct access to ECB's fresh money, they've become completely dependent on the Emergency Liquidity Assistance funds of the Greek Central Bank. These loans are not only far more expensive, they first have to explicitly be approved by the ECB. In result, the latter is holding these banks on a short leash, and occasionally raising the ceiling of the loans in the meantime - but to a much lesser extent compared to the time of the previous Greek governments.
Last month the ECB came up with instructions that were designed to limit the amounts that the Greek banks could spend for buying bonds from the Greek state. This way the pressure on Athens was increased immensely. It's currently much more beneficial for the Greeks to look for loans at the capital markets. After the meeting between the Greek financial minister Yanis Varoufakis and the IMF chairlady Christine Lagarde (last week), the profitability of the Greek three-year bonds reached a record 27%, the highest rate since the time of the partial remittal of the Greek debt in 2012.
This is why the Greeks are now insisting on faster payment of the already promised bailout worth 7.2 bn euro. However, the creditors are holding the money because they don't consider the reformist efforts of Tsipras' government to be sufficient. In February, the Eurogroup decided to extend the aid program until June. The decision was declared a success, but it failed to bring any clarity on the issue. In turn, the Greeks interpreted it as a "new framework" for negotiations, as Tispras himself told Angela Merkel. The rest of Europe is only imagining to be seeing in all that a confirmation of Greece's commitment to keep the austerity course of Tsipras' predecessor.
The trouble is that the new Greek government came to power exactly on promises to reject that policy. The reason Tsipras was elected is because he vowed to end the reforms imposed by the Eurogroup, which the majority of Greek voters evidently consider to be antisocial and economically counter-productive. Given the depleted national treasury, Lagarde has called for all participants in the negotiations to hurry up. Because this isn't a case that could be solved in the last minute with some kind of political decision. Now the financial ministers are the main players, particularly those from the Eurogroup, and the respective institutions that they've authorised.
Last week Tsipras expressed tremendous optimism that by the end of the month an agreement would be reached, despite some points of contention about the labour market, the pension reform, on taxation and privatisation. On Friday, the ministers of finance of the Euro zone will again convene in Riga. The German minister of finance Schaeuble has hastened to cool the enthusiasm a bit, saying that nothing particularly new is expected to happen in Latvia.
So the pressure on the Greek government to submit to the requirements of the creditors for cuts and reform, is building up by the day. Alexis Tsipras is the first Greek politician to ever skip the Bible during his inauguration ceremony, for being atheist. But that didn't stop him from seeking even the aid of the immensely influential Greek Orthodox Church. Its primate, Archbishop Ieronimos II has proposed that the church, which has a multi-billion wealth at its disposal both in terms of treasury and real estate, to help in finding new financial sources for the treasury - not without some strings attached, of course.
Christine Lagarde, the IMF chairlady has made it clear that she'll insist that the payments be made on time. For the last three decades, the IMF has never given a single day of deferment to their debtors. There hasn't been a single case of a developing country requesting such, respectively. Greece would be the first if they dare do that. But even so, the IMF doesn't look likely to grant the request. In other words, there'll be no exceptions - because they've got strict rules, and they don't see a reason to make a compromise with them.
The ECB is also amping up the pressure. Mario Draghi, the ECB chairman is already using terms like, "a rule-based institution" to characterise that institution. However, if past experience is any guide, the rules could often be interpreted in many ways. Many critics believe the ECB doesn't have a mandate to buy state bonds en masse. This of course didn't prevent Draghi from flooding the financial markets with 60+ bn euro.
As per their own rules, the ECB didn't have the right to accept the Greek state bonds as compensation, since Greece's fiscal ratings had already reached the bottom. There was a time when this rule could be bypassed through exceptions that could be hastily voted and approved. But after Tsipras came into office, the ECB decided to backtrack on their initial decision, and cut Greece's way to the important financial markets.
The ECB now explains they don't expect the Greek reform program to be successful. Since the Greek banks were cut off from direct access to ECB's fresh money, they've become completely dependent on the Emergency Liquidity Assistance funds of the Greek Central Bank. These loans are not only far more expensive, they first have to explicitly be approved by the ECB. In result, the latter is holding these banks on a short leash, and occasionally raising the ceiling of the loans in the meantime - but to a much lesser extent compared to the time of the previous Greek governments.
Last month the ECB came up with instructions that were designed to limit the amounts that the Greek banks could spend for buying bonds from the Greek state. This way the pressure on Athens was increased immensely. It's currently much more beneficial for the Greeks to look for loans at the capital markets. After the meeting between the Greek financial minister Yanis Varoufakis and the IMF chairlady Christine Lagarde (last week), the profitability of the Greek three-year bonds reached a record 27%, the highest rate since the time of the partial remittal of the Greek debt in 2012.
This is why the Greeks are now insisting on faster payment of the already promised bailout worth 7.2 bn euro. However, the creditors are holding the money because they don't consider the reformist efforts of Tsipras' government to be sufficient. In February, the Eurogroup decided to extend the aid program until June. The decision was declared a success, but it failed to bring any clarity on the issue. In turn, the Greeks interpreted it as a "new framework" for negotiations, as Tispras himself told Angela Merkel. The rest of Europe is only imagining to be seeing in all that a confirmation of Greece's commitment to keep the austerity course of Tsipras' predecessor.
The trouble is that the new Greek government came to power exactly on promises to reject that policy. The reason Tsipras was elected is because he vowed to end the reforms imposed by the Eurogroup, which the majority of Greek voters evidently consider to be antisocial and economically counter-productive. Given the depleted national treasury, Lagarde has called for all participants in the negotiations to hurry up. Because this isn't a case that could be solved in the last minute with some kind of political decision. Now the financial ministers are the main players, particularly those from the Eurogroup, and the respective institutions that they've authorised.
Last week Tsipras expressed tremendous optimism that by the end of the month an agreement would be reached, despite some points of contention about the labour market, the pension reform, on taxation and privatisation. On Friday, the ministers of finance of the Euro zone will again convene in Riga. The German minister of finance Schaeuble has hastened to cool the enthusiasm a bit, saying that nothing particularly new is expected to happen in Latvia.
So the pressure on the Greek government to submit to the requirements of the creditors for cuts and reform, is building up by the day. Alexis Tsipras is the first Greek politician to ever skip the Bible during his inauguration ceremony, for being atheist. But that didn't stop him from seeking even the aid of the immensely influential Greek Orthodox Church. Its primate, Archbishop Ieronimos II has proposed that the church, which has a multi-billion wealth at its disposal both in terms of treasury and real estate, to help in finding new financial sources for the treasury - not without some strings attached, of course.