08 Jul 2015 08:57

Greece, what was the outcome of Tuesday´s summits?

The Greek Finance and the Prime Ministers surprised yesterday (again) by - despite high expectations - not presenting any new concrete proposals on how the country should get on its feet. The result will be a new summit on Sunday and a new “final deadline” to reach an agreement. Chief economist Robert Bergqvist comments the latest development in the Greek drama. 

The Eurozone's other 18 heads of states probably devoted most of yesterday’s summit to discuss different emergency plans. "We have a detailed Grexit plan" stated the chairman of the EU Commission Jean-Claude Juncker. A number of euro leaders, including Germany's Merkel, expressed continued pessimism about the possibility of reaching an agreement. "This is the most critical moment in the Eurozone's history", said the President of the EU Donald Tusk. "Now Greece may choose: a deal or face the fact that the country and its banks going bankrupt on Monday."

What is the timetable until Sunday?

Later today, the Greek Prime Minister Tsipras is expected to speak before the European Parliament. On Friday at 08.30, Greece must submit a final proposal for the necessary structural reform and savings. Later today or maybe tomorrow, Greece is expected to formally apply for a third bailout package. On Saturday, the Eurogroup finance ministers will discuss - and likely take decisions on - the Greek proposals. On Sunday, all EU's 28 heads of states (not only the Eurozone's 19 leaders) will hold a summit. Sunday is also, according to ECB President Draghi, the deadline for the ECB's ability to continue financing Greek banks.

Which are the main components of a third bail-out package?

In exchange for reforms and savings Greece should get a) short-term liquidity so that the country on July 20 can repay EUR 3.5 billion to the ECB, and b) long-term (maybe 2-3 years) funding so the country becomes independent of capital markets. The package is also expected to include some kind of debt restructuring and also how Greece can get access to different EU funds which can support future and long-term economic growth.

Why should all the 28 EU countries meet on Sunday?

There are probably several reasons. If we face a Grexit, EU must quickly mobilize different types of support (humanitarian, financial, structural) that requires decisions by all EU countries. Upcoming events may also affect Greece's EU membership. Finally, it is also important to get crisis awareness in many euro and EU countries to get broad support, and decisions, in national parliaments for further aid to Greece.

Why should we believe this deadline?

The concept ”deadline” has in recent weeks got a very flexible interpretation. But what makes the latest deadline credible is that time is running out for both Greece and the Greek banks.

Will they agree?

Greece destiny lies in the hands of Athens. Different comments made by several EU leaders suggest that we should keep expectations on a deal at a low level ahead of Sunday’s deadline. Logically, things speak in favour of an agreement but Athens has not acted logically in recent weeks. Therefore, the probability of Grexit remains very high.