SUZI Q'S ESTATE FINDS: Greece Rejects Bailout Extension, Tsipras Says "Won't Be Blackmailed"

Friday, June 26, 2015

Greece Rejects Bailout Extension, Tsipras Says "Won't Be Blackmailed"

Update: reports suggest Greece has rejected creditors' bailout extension proposal.

GREECE SAID TO REJECT EU15.5B BAILOUT EXTENSION PROPOSAL: ANA

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On Friday, the German press reported (and Bloomberg later confirmed) that Greece’s creditors had presented PM Alexis Tsipras with a document (essentially an outlining the following available funds that could theoretically be part of either an extension of the country’s second bailout or a third program (with the latter having been previously ruled out by the IMF and German lawmakers). The details are as follows:

EU creditor proposal foresees EU8.7b in EFSF funds: official
Creditor proposal foresees EU3.3b in SMP profits: EU official
Creditor proposal foresees EU3.5b in IMF funds: EU official

As noted, if Greece receives €3.3 billion from SMP profits it will mean that the ECB has forfeited the money it made on the Greek bonds it purchased in the past, effectively allowing Athens to repay the central bank with its own money. Here's DB with some color:

There may be a more rapid disbursement option. EUR1.9bn of the EUR7.2bn stalled tranche is SMP profits. Releasing these funds might only involve a decision by finance ministers without necessarily consulting parliaments. Disbursing EFSF funds, on the other hand, requires the national approval process (e.g., the joint decision by the German Finance Minister and the Budget Committee, if not a full plenary vote). In other words, SMP profits could be disbursed at short notice. These would be sufficient to pay the EUR1.6bn owed to the IMF on Tuesday.

As for the EFSF funds, it's long been suggested that bank recap funds could be chanelled to Athens under the 'right' circumstances and apparently imminent default is as good an excuse as any. Citi has more on the EFSF funds:

The interim proposal would likely allow Greece to use part of the €10.9bn from the original Hellenic Financial Stability Fund (HFSF) designated for Greek bank recapitalization, and later transferred back to the EFSF/ESM. Various media outlets have reported on the possibility that around €9bn could be used for current expenditure, in line with our estimates of the financing needs of the Greek sovereign for 3Q. Although a unanimous agreement will be required at the ESM board level to redirect the resources away from its banking recapitalization objective, we believe that a deal is likely to be found. The release of such funds would allow an extension of the current programme for several months, while giving more time for creditors and the Greek authorities to complete the negotiations for a third aid programme. It could also convince the ECB to increase the T-bill ceiling and the SSM to raise the ceiling on the exposure of Greek banks’ to their sovereign. All this however remains conditional on the approval of the ‘interim’ package by the Greek Parliament as well as by various national parliaments (in Germany, the Netherlands and Finland among others).

German Chancellor Angela Merkel implored Tsipras to accept what she calls a “generous” offer and has been adamant that a deal must be struck by the time the market opens on Monday which effectively means that EU finance ministers will need to strike an agreement at tomorrow’s Eurogroup meeting which starts at 2 pm local time. “I spoke today about a very generous offer because we simply have moved a step toward Greece, also with respect to the February agreement,” Merkel said.

In the wake of this morning’s news, the rhetoric from Tsipras has only hardened with the Greek PM pledging to uphold the democratic values upon which the euro was founded and to not accept “blackmail” (which of course is rather ironic, considering Merkel said precisely the same thing with regard to the Greek on Thursday):

Document of proposals presented to the Greek side by the institutions is “worse than a memorandum,” ANA reports, citing Greek govt officials in Brussels.

Greek Prime Minister Alexis Tsipras says he will defend the European Union’s founding principles of “democracy, solidarity, equality, mutual respect” as he seeks an agreement with international creditors to unlock aid for the country.

“These principles were not based on blackmails and ultimatum, and especially in these crucial times no one has the right to put in danger these principles,” Tsipras tells reporters in Brussels after an EU summit

“The Greek government will continue decisively to give the fight in favor of these principles, to continue to give the fight on behalf of the European people and of course on behalf of the Greek people,” he says.