Greece poised for troika talks amid bourse shutdown

Greece’s cash-strapped government is set to begin talks with creditors on a new bailout agreement, as capital controls and the shutdown of the country’s financial markets enter a fifth week.

Technical experts from the European Central Bank, the International Monetary Fund and the European Commission are due to begin negotiations with their Greek counterparts by Tuesday on the many policies Greece needs to implement over the next three years, in return for emergency loans of as much as 86 billion euros ($94 billion).

After six months of brinkmanship which triggered unprecedented capital flight, the government was forced to impose capital controls and close its banks on June 28, in order to safeguard scarce liquidity in its financial system.
Lenders reopened with limited services last week, after Prime Minister Alexis Tsipras capitulated to creditors’ demands and agreed to implement prior actions required in exchange for a third bailout program.

While the government eased some of the restrictions on deposit withdrawals and capital controls for corporations on Friday, Greek proposals for a lifting of limits on trading were rejected by the ECB, according to an Athens Exchange spokeswoman. The Bank of Greece, the Hellenic Capital Market Commission and the finance ministry are negotiating the ground rules for the reopening of markets, with temporary safeguards in place to preserve liquidity in the banking system, said the spokeswoman, who asked not to be identified by name, in line with policy.

Restoring Confidence

A ministerial decree setting the ground rules for the reopening of the Athens Stock Exchange, multilateral trading facility and electronic secondary market for bonds is expected after consultations with the ECB conclude. An emergency ban on short selling, approved by the European Securities and Markets Authority, also expires Monday.

The chairwoman of the National Bank of Greece, Louka Katseli, said in an interview with Agora newspaper that only a completion of an agreement for a new aid program will restore confidence in the banking system and allow for the lifting of capital controls.

Technical groups representing creditor institutions arrived in Athens for negotiations, and the government said on Saturday that the heads of the Greece mission from each of the institutions may arrive a few days later.

According to an international official directly involved in Greece’s bailout program, the delay was due to two reasons: the Greek government was seeking to confine the movements of Troika staff in Athens, and creditors haven’t reached a common position with Greece on whether additional prior actions will be required before the country is eligible for a new loan facility.

Additional Measures

While the government and the Commission have said Greece has fulfilled the conditions following two votes in parliament in the past two weeks, some euro area member states are still pushing for additional measures, the official added, asking not to be identified as he isn’t authorized to speak publicly on the matter.

While the two sides are now more or less in agreement on the formats and logistics of the meetings between the government and the so-called Troika, the latest delay means that completing a full memorandum of understanding in the next two weeks, which would detail dozens of savings measures and structural economic overhauls, is unlikely, the official said, adding that a new short-term bridge loan may be needed to avert default on the ECB payment in August.

Deepest Recession

After five years, two bailouts, and the deepest recession in more than half a century, the word “memorandum” has become a loaded term in Greece’s political debate.

“I don’t back this government to agree new memorandums and implement them,” Syriza governing-party lawmaker Panagiotis Lafazanis told Real newspaper on Sunday.

Lafazanis was replaced as energy minister after leading a revolt of more than quarter of Syriza’s lawmakers against the agreement struck between Tsipras and the country’s creditors earlier this month, which calls for a new memorandum to be signed.

Previous memorandums committing Greece to enforce reforms on everything from the rules of bank recapitalizations to evaluating the “impact of the changes in milk pasteurization and sale procedures,” have prompted dissenters to claim that Greece has turned into a “debt colony.” Creditors argue that changes are necessary to stabilize the country’s finances and set it on course to sustainable growth.

‘Grand Coalition’

Syriza’s political secretariat will meet Monday to discuss the party’s strategy after the government’s U-turn and its effective loss of a parliamentary majority following the mutiny of MPs from the so-called Left Platform faction. The Platform, led by Lafazanis, will hold an anti-austerity event, also on Monday, to debate the results of a July 5 referendum, in which Greeks overwhelmingly voted against the terms offered by creditors. The event is titled “The No hasn’t been defeated.”

Because Tsipras will have to rely on opposition votes in order to secure parliamentary approval of the new memorandum and any prior action needed to secure the disbursement of loan tranches, Greece is heading toward a “de facto grand coalition,” Roubini Global Economics analysts Brunello Rosa and Mert Yildiz wrote in a note to clients.

“While Syriza is still hanging on to power, the defection of the party’s left wing, offset by parliamentary support from pro-bailout parties like New Democracy, To Potami and PASOK, shows that Greece is headed in this direction,” they said.

[Bloomberg]