The PJ Tatler

Are You Ready for the Grexit? Don't Worry, No One Else Is Either

Chances are close to zero that European leaders will grant Greece a third bailout. which will almost certainly lead to a Greek exit from the euro currency.

EU finance ministers failed to reach a decision on whether they should recommend acceptance of Greece’s reform plan, which would form the basis for a third bailout of the Greek economy. That bailout has ballooned to more than 74 billion euros over the next 3 years as technical experts now say that Greek banks will need an astonishing 25 billion euros to recapitalize.

The primary issue is one of trust. In simple terms, most of Europe does not trust Syriza, the far left party in Greece that came to power promising to end austerity, to implement the austerity measures that Prime Minister Alexis Tsipras is proposing. They don’t even trust the statistics on the economy coming from the Greek government. The lack of trust has led to calls by some leaders for the Greek parliament to implement some of the austerity measures now, even before a bailout is agreed to.

Most of all, they don’t trust Tsipras.

All this adds up to the EU leaders moving toward a German proposal that would force Greece out of the euro for 5 years, while simultaneously offering humanitarian aid when Greek society inevitably melts down and some modest debt restructuring.

Wall Street Journal:

German Chancellor Angela Merkel said finance ministers won’t recommend starting negotiations for a bailout immediately, warning that a deal on Greece wouldn’t be made “at all costs.”

“The most important currency has been lost and that is trust,” Ms. Merkel said.

Finance ministers from the currency area convened earlier in the day, and discussed a draft statement that contains a “timeout” for Greece from the eurozone as a potential option, two European officials said Sunday. The statement, which may still change, will form the basis for crisis talks of eurozone leaders later Sunday, these officials said.

The statement says that “in case no agreement [on a new bailout program] could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring,” one official said. The sentence is still in brackets, indicating that it doesn’t have the backing of all 19 eurozone countries.

However, French President Francois Hollande later said, “There is no temporary Grexit. There is only Grexit or not Grexit.”

Austrian Finance Minister Hans Jörg Schelling said that finance ministers might present eurozone leaders with alternative proposals on whether to give Greece a new round of rescue loans.

The finance ministers’ reluctance to take a decision on Greece’s request for a new bailout—and thereby its future in the eurozone—despite the government’s promise to implement most of the measures demanded by creditors shows how much trust and goodwill has been eroded in recent months. Greece and its creditors—other eurozone governments and the International Monetary Fund—have been locked in negotiations since the government of Prime Minister Alexis Tsipras was elected in late January.

A meeting of all 19 members of the European Union has been cancelled because they have nothing to vote on today. The 9 eurozone leaders will continue to meet until some kind of resolution of the Greek crisis is reached.

The key to any additional bailout funds for Greece is German Chancellor Angela Merkel, who is being whipsawed between her desire to keep the eurozone together and the probability that any Greek bailout proposal would be voted down by the German Bundestag. So far, Merkel is kept her hard line intact, and it doesn’t appear she is ready to bend any time soon.