The Greek government made its re-negotiation platform (for talks with the Troika) public. They ask to extend the deadline for meeting the fiscal criteria by 2 years. They also want to scrap plans to cut 150K public sector jobs, repeal the 22% cut in the minimum wage and raise the income tax threshold. They apparently want to offset the annulations of these measures by clamping down on tax evasion and public spending cuts. The government also wants €20B fresh loans to make up for the shortfall. We don’t know the fate of the €11B of measures they still have to take, according to the bailout agreement.
This looks for us a quite aggressive opening gambit for a bankrupt country and expects it to get a short shrift from the Troika. German FM Schaeuble already said that Greece should stop asking for additional help and get on with implementing reforms.
The Greek PM is in hospital and won’t be able to attend the Summit, while his FinMin is in hospital too for hearth issues. In this respect, the Troika cancelled the mission to Athens. The visit has been postponed and new dates have not yet been set. A Greek official said July 2 was a possible next date. This means that there is also less time to decide on the possible next aid disbursement (€3.2B). Greece earlier reported that the state coffers would be empty by July 20. In combination with the harsh proposed changes to the bailout terms, this might again increase Grexit fears and uncertainty in the weeks to come.
As EU leaders gather in Belgium for the latest Summit on Thursday and Friday Greece and Spain turn up the pressure. Spain faces a Monday deadline to submit a formal request for aid to the EFSF/ESM to recapitalize its banks. Key questions remain such as subordination of claims within the funding apparatus and whether credible capital plans will be presented. The Summit discussions will center upon refinancing sovereign and bank capital requirements through some or all of the following options: the soon-to-be-enacted European Stability Mechanism, Eurobonds, a banking union, talk of a “growth pact”, an unappealing redemption fund proposal, or euro bills as an incremental step toward eventual Eurobonds.
At issue is therefore whether more talk about needed long-run structural changes will appease markets that are impatiently seeking nearer-term solutions and thus the clear risk would be to repeat the pattern to date of disappointment coming out of major summits—especially in light of persistent German resistance to many of the proposals.
Angela Merkel and Finance Minister Schaeuble are going to sit back quietly and accept the terms of the Greek demands. We should see tensions turn up and the euro collapse this week. As markets do not expect any substantial results from the EcoFin meetings, there will be little news to support the euro.