Remarks by President Donald Tusk after the Euro Summit of 7 July 2015 on Greece

The official press release can be found here

I will read out what was agreed by leaders at tonight’s Euro Summit:

1. We met tonight to discuss the serious situation in Greece. We noted that the euro area authorities stand ready to do whatever is necessary to ensure the financial stability of the euro area as a whole.

2. Following the Greek referendum, Prime Minister Tsipras committed to present a new request for a programme within the framework set by the ESM Treaty, including strict policy conditionality.

3. We agreed to urgently examine whether it is possible to establish a basis for finding an agreement that respects existing commitments and our common rules.

4. The Greek government will on Thursday 9 July at the latest set out in detail its proposals for a comprehensive and specific reform agenda for assessment by the three Institutions to be presented to the Euro Group.

5. The Heads of State or Government will meet on Sunday 12 July.


Let me add a few words from my own perspective. All sides of the negotiations share the responsibility for the current status quo. That is why today I called on all leaders to try to find consensus, which will be our common success, with no losers or winners. If this does not happen it will mean the end of the negotiations with all the possible consequences, including the worst-case scenario, where all of us will lose. Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system. And for sure, it will be most painful for the Greek people. I have no doubt that this will affect all Europe also in the geopolitical sense. If someone has any illusion that it will not be so, they are naive.

The stark reality is that we have only five days left to find the ultimate agreement. Until now, I have avoided talking about deadlines. But tonight I have to say loud and clear that the final deadline ends this week. All of us are responsible for the crisis and all of us have a responsibility to resolve it.

Greece, Negotiations and the ECB

The document in pdf Version is Oxi-En-July6

The “no” has won at the Greek referendum on July the 5th.
The Prime Minister, Alexis Tsipras, who went to a clash with the troika, is now the strong man in Greece. He made a call for a “no” vote and he has been followed by the Greeks with a large margin as the “no” had more 60% of the ballots. The “no” mustn’t be understood as a rejection of the Eurozone but as a deep disagreement with the economic options that were proposed by the troika. On this issue, the main point is that the troika’s proposals extend austerity policies until at least 2018 (time to converge to the primary budget balance target). The risk associated with this strategy is to create conditions that could extend the recession that has started in 2009 and that has reduced the GDP level by 25%.

The question now will be to restart negotiations.
Clearly the balance of strength between negotiators has changed. The “no” at the referendum has given legitimacy to Alexis Tsipras to negotiate and to create pressures on the troika. He has a clearer mandate taken from the results of the referendum. The agreement that has been made with other Greek’s parties on his capacity to negotiate for Greece clearly shows that he is, without doubt, the strongest representative for Greece. He can push the troika as he thinks that European countries fear a Grexit as it could create troubles on the European construction and weaken institutions. Continue reading

More instability to come in Greece?

The situation will remain complex and probably unstable in the coming weeks in Greece. Here are some few reasons:

Polls this week have shown that the two branches of the alternative in the referendum had almost the same percentage of vote. It means that if the result is as narrow as these polls it will be difficult to manage. But ok in a democracy one more voice is sufficient.

Nevertheless, details of polls show that people above 55 years of age vote mainly for the yes and those below 55 years of age vote for the no. This referendum reflects also a generational perception of the environment. Those, above 55, like stability and want to keep what they have. Younger people try or imagine being able to create their own future. It’s two different stories and the referendum can create a new environment that can be less cooperative.

Source @YiannisBab

A victory of the Yes doesn’t mean political stability. A victory of the Yes would imply the current government resignation and some new general elections. But with the current electoral law the party that arrives first has a bonus of 50 seats. And this party could be Syriza. 

Parties that favor the yes have no consistent behavior and target one with each other. New Democracy, Pasok and To Potami may join on Europe only and that’s not sufficient to form a stable government. So a Yes could mean political instability.  (Read the excellent paper of Hugh Dixon on this point)

As it is suggested by a Guardian article this morning, restrictions (on cash, food, pharmaceuticals) will have long lasting effects on the economy. The shock will push it down back in recession while there were positive signals on activity and employment at the end of last year. 

The long period of recession has broken the Greek society. There is a need to solve economic questions but political stability is at least more important. There is a need not to fall in a chaos. 


Picture: Shop shelves are almost empty on July the 4th


Greece – The die is cast

The die is cast.The deadline for the negotiations between the Greek government and the Troika (IMF, European Union, ECB) has passed – but Greece has not repaid the €1.6bn due to the IMF.

Yet, a final U-turn and a final proposal from the Greek government to the Troika yesterday gave rise to an unsuccessful Eurogroup phone conference. At the same time, the discreet request to the IMF for an additional repayment deferral went unheeded.

It is worth noting that the European Union did not remain passive and suggested the possibility of a renegotiation of the Greek debt from October 2015 (but not a debt reduction as the Greek government had wanted). This proposal, which triggered a counterproposal from the Greek government, was not acceptable since it did not include any debt reduction and forced Alexis Tsipras to call for a “yes” vote at Sunday’s referendum, contrary to what he had had announced previously.

Moreover, a Greek representative indicated that the referendum was part of his negotiation strategy and that a massive “no” would force the Troika to review its position if the objective was to prevent a Greek exit from the euro zone. The comments have changed on this point. The ECB’s Benoit Coeuré has indicated that this possibility could no longer be ruled out and Sigmar Gabriel, the German Vice-Chancellor, Monday indicated that a massive “no” would open the door for a Grexit.

The short-term horizon is now Sunday’s referendum.

We have no opinion polls for the time being that could give an initial estimate of the outcome of the vote. However, if Sunday’s vote reflects the political map, a “yes” victory is possible. Another factor pointing in this direction is the analysis of referendums on independence (for example Québec), which shows a conservative reflex during votes, with a rejection of independence. That would then reopen the possibility of negotiations with the Troika, which could then, however, set the conditions. In that case, we could not imagine that the Greek government would have significant leeway. It would no longer be led by Alexis Tsipras, as he would not have any legitimacy after his call for a “no” vote.

However, let us not draw hasty conclusions. The Greeks are in a difficult situation after five years of recession and an unemployment rate that affects more than a quarter of the labour force. An implementation of the measures recommended by the Troika would trigger a reduction in demand directed at companies, thereby increasing the probability of an extension of the recession. The pension cuts (1 percentage point of GDP in 2016) and the VAT hike (even if the increase is smaller than initially expected in the islands) would have a negative impact on activity for a long time to come. And even though growth expectations for the euro zone are better for 2015 and 2016, the contagion effect will not be strong enough to change the state of affairs, barring a boom for Greek tourism over the next few months.  

There is no miracle solution. An article published this morning in the Guardian indicates that even with the implementation of the measures that the IMF has recommended, the public debt will not fall rapidly. In the baseline scenario, the public debt-to-GDP ratio would still be 118% in 2030 versus 175% currently. Debt reduction is inevitable if a solution to the Greek issue is desired. So the situation, as for the result of the referendum, remains uncertain. 

The other key factor in the next few days will be the ECB’s reaction.  

It did keep the liquidity contribution at Friday’s level over the weekend. What will be its behaviour in the coming days? Will it reduce its liquidity contributions after the end of the ultimatum after Greece missed the deadline? Or will it wait for the outcome of the referendum? That is a crucial question since its action will enable us to anticipate the conditions under which Greek banks will be able to open again.

A restrictive behaviour by the ECB, via a reduction in liquidity or more severe constraints on the conditions for providing this liquidity (larger haircut), could keep the banks closed for a longer period, as they would not have enough liquidity. This would then throw Greece into an even more awkward situation.

In other words, the ECB will play an important role in developments in the immediate future since a hardening of its stance would lead to more restrictive capital controls, thereby fuelling discontent among the Greek. As a result, it should at least wait for the results of the referendum before changing strategy. It will also have a role to play even in the event of a “no” as the Greek banking system will spontaneously be in trouble. ECB assistance would then make it possible to avoid a more dramatic situation and emergencies.

The third major point is Europe.  

The reversibility of the European construction, that a Grexit would give rise to, should give food for thought about the desired objectives for this construction, which has been going on since the 1950s. The idea of an area of intensive trade in Europe was then seen as the best way to eventually create a more autonomous political momentum across the continent. The euro zone is also a move in this direction. Its creation, the crowning achievement of the European construction, also led to the need for a political construction that could allow for more efficient management of the currency area as a whole. The idea that all the architects that had worked on the creation of the zone agreed on was that the last building block would be political, in order to have a totally integrated economic area. 

The reversibility, associated with a Grexit, would weaken this idea since other countries might leave the zone. That means that there cannot be any integrated political structure that is able to balance the interests of one country with respect to another. If a country can leave, then no country would be interested in joining an integrated system as its situation could be weakened if one country left the zone.

But if this ultimate construction and final integration does not take place, then the euro zone no longer has the same nature. It becomes a simple fixed exchange-rate area. And that no longer something that creates inspiration.

The question of the Grexit is not the imbalance that a Greek exit would mean for the European economy as a whole, but the political impact it would have on the construction of the entire zone.

If reversibility becomes reality as a result of a Greek exit, there will be a need for a strong, consistent and rapid message aimed at creating more robust institutions to ensure that the spirit of the euro zone remains.

Any European construction is political in its essence and the economy is only a means to arrive at this political dimension. This is the important issue given the mosaic that Europe is. If it was no longer so marked then the big loser of a Grexit would be Europe, its diversity and also its common strength.

What European dynamic can be expected after the announcement of the greferendum?

A pdf format version of this note is available Greferendum-28juin2015_EN

The framework of the euro zone has changed spectacularly this weekend.
This is because on the night between Friday and Saturday, Alexis Tsipras, the Greek prime minister, announced that a referendum would be held in Greece on the measures desired by the troika (European Union, ECB and the IMF) as part of the negotiations on the Greek bailout.
This option was not expected, since Greek negotiators learned about it via Twitter. The break implies the end of negotiations, at least temporarily. These, before the announcement of the referendum, had become pointless, as the points of view were no longer compatible.

Faced with this sudden change, the Eurogroup had an emergency meeting on Saturday. It considered that the deadline of Tuesday for the end of the protocol on the commitments between the troika and Greece was maintained. There is no deadline extension, as requested by Greece, if there is no major change. The head of the Eurogroup, Jeroen Dijsselbloem, left the door partly open to discussions, in case of a Greek change of mind. (Jean Claude Juncker and Angela Merkel have said the same thing on Monday)

This implies that on Tuesday evening, beyond the negotiation, it is the entire process that is weakened and compromised.

On this point, there are three factors to be considered: Continue reading