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.
Talks at the weekend ended in a stalemate. Eurozone finance ministers meet on Thursday, 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.
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 (ECB). A further €7.2bn in bailout money is still to be paid out to Greece by the trio of creditors. The creditors, also known as the troika, want to see more reforms in Greece in return for releasing the last lump of rescue funds.
Greece’s government, led by Alexis Tsipras, the prime minister, 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.
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.
Greece continues to insist on softer terms for 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.
“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.
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.
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?
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.