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| Why this week is vital for Greece and the eurozone | Why this week is vital for Greece and the eurozone |
| (34 minutes later) | |
| Why is this a crunch week for Greece? | Why is this a crunch week for Greece? |
| The Athens government has been in debt talks with its international creditors for months in a bid to get them to release a last chunk of held-up bailout funds and avert bankruptcy. It needs the money to meet debt repayments and without it there is a fear that Greece will end up defaulting, which could precipitate its exit from the eurozone. | The Athens government has been in debt talks with its international creditors for months in a bid to get them to release a last chunk of held-up bailout funds and avert bankruptcy. It needs the money to meet debt repayments and without it there is a fear that Greece will end up defaulting, which could precipitate its exit from the eurozone. |
| Talks at the weekend ended in a stalemate. Eurozone finance ministers meet on Thursday, quite possibly the last chance to unlock badly needed rescue funds for Greece before it has to repay €1.6bn (£1.2bn) to the International Monetary Fund at the end of June. | Talks at the weekend ended in a stalemate. Eurozone finance ministers meet on Thursday, quite possibly the last chance to unlock badly needed rescue funds for Greece before it has to repay €1.6bn (£1.2bn) to the International Monetary Fund at the end of June. |
| Related: Greek default fears hit markets, as commissoner predicts "state of emergency" - live updates | Related: Greek default fears hit markets, as commissoner predicts "state of emergency" - live updates |
| What are the debt talks? | What are the debt talks? |
| After bailouts in 2010 and 2012, Greece owes money to the so-called Brussels Group, made up of the IMF, the European commission and European Central Bank. A further €7.2bn in bailout money is still to be paid out to Greece by the trio of creditors. The creditors, formerly called the troika, want to see more reforms in Greece in return for releasing the last lump of rescue funds. | After bailouts in 2010 and 2012, Greece owes money to the so-called Brussels Group, made up of the IMF, the European commission and European Central Bank. A further €7.2bn in bailout money is still to be paid out to Greece by the trio of creditors. The creditors, formerly called the troika, want to see more reforms in Greece in return for releasing the last lump of rescue funds. |
| Greece’s government, led by the prime minister, Alexis Tsipras, contends that austerity measures demanded by creditors are too harsh and that some of its huge debts need writing off or shifting back for much later repayment if the country is ever to get back on its feet. Tsipras came to power on an anti-austerity ticket in January and is refusing to accept new spending cuts and tax rises to achieve the budget surpluses demanded by Greece’s lenders. | |
| Tsipras has indicated he would accept compromises on the lenders’ austerity demands in return for debt relief – the writing off or rescheduling of some of Greece’s debt. But debt relief, and the prospect of never recovering money owed, is staunchly opposed by Germany, the biggest contributor to Greece’s €240bn bailouts. | Tsipras has indicated he would accept compromises on the lenders’ austerity demands in return for debt relief – the writing off or rescheduling of some of Greece’s debt. But debt relief, and the prospect of never recovering money owed, is staunchly opposed by Germany, the biggest contributor to Greece’s €240bn bailouts. |
| Where have the two sides got to? | Where have the two sides got to? |
| Last-ditch talks on Sunday collapsed in acrimony after 45 minutes. European Union officials dismissed Greece’s latest reform package as incomplete and said there was still a €2bn gap between Athens and the trio of lenders in terms of yearly permanent budget savings. | Last-ditch talks on Sunday collapsed in acrimony after 45 minutes. European Union officials dismissed Greece’s latest reform package as incomplete and said there was still a €2bn gap between Athens and the trio of lenders in terms of yearly permanent budget savings. |
| Greece continues to insist on softer terms on the rescue funds. Tsipras implied on Monday that he would continue to resist demands to raise taxes and cut pensions. “One can only see a political purposefulness in the insistence of creditors on new cuts in pensions after five years of looting under the bailouts,” he said, in a statement to the Greek newspaper Ton Syntakton. | Greece continues to insist on softer terms on the rescue funds. Tsipras implied on Monday that he would continue to resist demands to raise taxes and cut pensions. “One can only see a political purposefulness in the insistence of creditors on new cuts in pensions after five years of looting under the bailouts,” he said, in a statement to the Greek newspaper Ton Syntakton. |
| Related: Markets slide as fears grow that Greece is close to defaulting on debt | Related: Markets slide as fears grow that Greece is close to defaulting on debt |
| “We will await patiently until the institutions accede to realism,” he said. “We do not have the right to bury European democracy at the place where it was born.” | “We will await patiently until the institutions accede to realism,” he said. “We do not have the right to bury European democracy at the place where it was born.” |
| After the breakdown of Sunday’s talks, the IMF sought to bring the parties closer together, with its chief economist, Olivier Blanchard, making suggestions for both sides. He said Brussels should be prepared to delay more of Greece’s debt repayments, accept only limited reforms and cut the interest applied to debt-relief loans, while Tsipras should offer further pension reforms and accept that some VAT exemptions must be dropped. | After the breakdown of Sunday’s talks, the IMF sought to bring the parties closer together, with its chief economist, Olivier Blanchard, making suggestions for both sides. He said Brussels should be prepared to delay more of Greece’s debt repayments, accept only limited reforms and cut the interest applied to debt-relief loans, while Tsipras should offer further pension reforms and accept that some VAT exemptions must be dropped. |
| What happens this week? | What happens this week? |
| On Wednesday, the ECB’s governing council meets and will discuss whether to extend emergency liquidity assistance (ELA) for Greece. The ECB has been drip-feeding this support to Greek banks as they struggle with dwindling deposits because worried Greek savers are pulling their money out of accounts to keep at home or move overseas. | On Wednesday, the ECB’s governing council meets and will discuss whether to extend emergency liquidity assistance (ELA) for Greece. The ECB has been drip-feeding this support to Greek banks as they struggle with dwindling deposits because worried Greek savers are pulling their money out of accounts to keep at home or move overseas. |
| However, as the name implies, this was never intended to be a long-term measure to keep a eurozone country afloat and the ECB has come under pressure to pull the plug. On Thursday, eurozone finance ministers gather in Luxembourg, and the cash-for-reform talks will resume. | |
| Headlines say time is running out. Is it? | Headlines say time is running out. Is it? |
| Over five months of fruitless talks, phrases like “last-ditch” and “crunch time” have been used again and again. But a look at Greece’s debt repayment schedule suggest things really are coming to a head now. | |
| Greece has a heavy calendar of debt repayments, as the chart below shows (note that the June payments to the IMF are now due in one lump sum of €1.6bn on 30 June, after Greece was allowed to bundle them together). Greece also needs funds for domestic spending obligations such as paying public sector workers and pensions. Without the held-up bailout money Greece will sooner or later miss a debt repayment – technically defaulting. | |
| Related: Unsustainable futures? The Greek pensions dilemma explained | Related: Unsustainable futures? The Greek pensions dilemma explained |
| As Michael Hewson, chief market analyst at the broker CMC Markets UK, says: | As Michael Hewson, chief market analyst at the broker CMC Markets UK, says: |
| The fact is, unless some significant concessions are made on either side, a default is now more or less inevitable, and even if a plan were agreed that was agreeable to the creditors, it is unlikely that the Greek government would be able to get it through their parliament. | |
| Given that Germany won’t countenance anything like debt relief at this point, we are likely set to see a continuation of this game of political cat and mouse through this week’s eurogroup finance ministers’ meeting on Thursday, and beyond to the end of the month. | |
| Hewson and another analysts say it is now only a matter of time before capital controls are introduced in Greece, whereby limits are placed on what savers can withdraw from banks. | Hewson and another analysts say it is now only a matter of time before capital controls are introduced in Greece, whereby limits are placed on what savers can withdraw from banks. |
| Views vary over whether Greece can avoid a default and eventual exit from the eurozone, termed the “Grexit”. | Views vary over whether Greece can avoid a default and eventual exit from the eurozone, termed the “Grexit”. |
| The French bank Société Générale said on Monday: | |
| Our economists’ base-case scenario [60% probability] remains that a last-minute deal will be struck, leading to a semi-stable scenario, but most likely not before the EU Summit on 25-26 June. | |
| Alastair Winter, chief economist at the broker Daniel Stewart, paints a gloomy picture: | |
| Mr Tsipras had better get ready to blink if he wants to get a single additional euro from Germany or, indeed, any of the other member countries. Of course, he too may have given up on reaching an agreement and is keeping up appearances simply to impress Greek voters. Either way, he is no longer in last-chance saloon but no-chance saloon. | |
| What is happening to Greece’s economy in the meantime? | What is happening to Greece’s economy in the meantime? |
| As talks grind on, Greece’s economy has fallen back into recession. A sharp drop in investment by increasingly nervous businesses and falling imports and exports left GDP down 0.2% in the first quarter after a 0.4% drop in the final months of 2014, according to the latest figures. | As talks grind on, Greece’s economy has fallen back into recession. A sharp drop in investment by increasingly nervous businesses and falling imports and exports left GDP down 0.2% in the first quarter after a 0.4% drop in the final months of 2014, according to the latest figures. |
| Unemployment remains the highest in the eurozone at more than 25%. Youth unemployment is above 50%. | Unemployment remains the highest in the eurozone at more than 25%. Youth unemployment is above 50%. |
| In the financial sector, capital flight continues and Greek bank deposits have slumped to a decade low. | In the financial sector, capital flight continues and Greek bank deposits have slumped to a decade low. |