ANALYSIS: Several tricky questions remain to be settled, not least the ECB's involvement in the deal
LIGHT WAS fading in chilly Brussels as euro zone finance ministers swept into the city for talks on the second Greek bailout. The word from Athens was good, but powerful voices stressed that definitive political approval for the deal would not come immediately.
“I don’t think we will have a definitive and final decision tonight,” said Luxembourg’s premier Jean-Claude Juncker, chief of the ministers. He wasn’t the only figure of rank to urge caution. In a tortuous process, this was another reason to be sceptical about an end being in sight. Greece is under mortal threat of default within weeks. Despite the urgency, EU authorities say they have every reason not to cut corners.
Several tricky questions remain to be settled, not least the European Central Bank’s involvement and the all-important political endorsement of Greek MPs for the deal. This is to say nothing of the complex “voluntary” bond-swap deal designed to cut Greece’s debt by as much as €100 billion.
No one in Europe wants to take chances. Hence the clamour by ministers to examine the small print and their reluctance to blithely write a cheque for €130 billion in the hope every- thing will come right in the end.
This was the night after the night before. Europe awoke yesterday to the news that technocrat prime minister Lucas Papademos narrowly failed overnight to secure his government’s backing for the gruelling austerity plan that will accompany the bailout.
As party chiefs left his office, Papademos went straight into yet more talks with the troika. It was 1am. The negotiation continued through the night.
When morning broke, it was unclear whether sufficient progress had been made to ensure Papademos would be able to bring his coalition on board.
The main sticking point was a proposal for large cuts to supplementary pensions, an initiative resisted by the ambitious centre-right leader Antonis Samaras. He sees an opportunity to become prime minister after elections in April and, for months, has resisted anything that might damage his prospects.
Rumour after rumour swirled in Brussels. Various reports said the troika might yield on pensions if the Greeks found €300 million in cutbacks elsewhere. Depending on the media outlet, word had it the country would be given 15 days to put its house in order – or three days.
Although there was no overt sign of a breakthrough as finance minister Evangelos Venizelos left Athens for Brussels, positive signals were being picked up on the diplomatic bush telegraph.
In the afternoon, however, ECB chief Mario Draghi revealed that Papademos had phoned him to say his government had reached a deal. Game on, or so it seemed. But much hangs in the balance.
For one thing, we still don’t know whether Draghi is minded to make a contribution to the rescue effort. If he does not, then the €130 billion loan plan and €100 billion debt cut will not bring Greece’s debt to a “sustainable” 120 per cent of national output by 2020.
That’s more than an academic question: it is a potential deal-breaker for the IMF, which insists on debt sustainability as a condition for any further aid.
Draghi took care not to reveal his full hand, but suggested the ECB could distribute the profits it makes from its Greek bonds to governments without entering the off-limits realm of illegal “monetary financing”.
The problem with that is that such profits would have to go to member states in line with their capital in the ECB, meaning all other euro zone countries would have to redirect their share of the action to Athens.
Then there is the “voluntary” character of the debt-restructuring plan. The EU authorities anticipate common sense will prevail and that private investors would prefer to receive half or 30 per cent of their money instead of nothing at all in a default situation.
But there is no way of knowing whether an overwhelming majority of bondholders will sign up, or whether Greek MPs will enact laws to empower a super-majority of bondholders to impose their will on any naysayer. Whether a super-majority could be achieved in such a scenario is also open to question.
Further uncertainty surrounds the political reaction to the deal in Greece. The expectation remains that Papademos will go to parliament on Sunday in the hope that a swift vote on the plan will prevent defections.
But that’s only for starters. Elections loom and the second bailout heralds prolonged pain for millions of Greeks. Europe wants guarantees there will be no wavering for years to come. Since the beginning of the saga, however, Greek leaders have made a fine art of wavering. This one ain’t over yet.
