Greek bailout decision delayed amid confusion

Eurozone i finance ministers ended a nine-hour meeting Saturday (11 July) without taking any decision on a new Greek bailout.

They will meet again Sunday morning to prepare a euro summit and a possible EU summit in the afternoon, while talks reached a new level of confusion.

As the Eurogroup i was taking place, a document leaked by Germany's Frankfurter Allgemeine Zeitung revealed that Germany was for the first time considering a temporary Greek exit from the eurozone.

The one-page document was sent to other eurozone governments by the German finance ministry, but German media reported that it was agreed by chancellor Angela Merkel i and vice-chancellor Sigmar Gabriel, the leader of Merkel's social-democrat coalition partner.

"In case debt sustainability and a credible implementation perspective can not be ensured upfront, Greece should be offered swift negotiations on a time-out from the Eurozone, with possible debt restructuring, if necessary, in a Paris Club-like format over at least the next five years," the paper said, referring to the international informal group in charge of restructuring the debt of countries facing difficulties.

Improvement

The Greek reform proposals submitted on Thursday (9 July) "can not build the basis for a completely new, three year ESM i programme, as requested by Greece," the paper also said, referring to the European Stability Mechanism, the eurozone's emergency fund.

According to the paper, the only alternative to the time-out would be that the "Greek authorities improve their proposals rapidly and significantly, with full backing by their parliament".

"The improvements must rebuild confidence, ensure debt sustainability upfront and the successful implementation of the programme - so as to ensure regained market access after completion of the program", the paper added.

Part of the requested improvement would be the "transfer of valuable Greek assets of €50 billion to an external fund".

Diplomatic sources said the paper was discussed at a technical level on Saturday morning, but not by the finance ministers in the evening.

The leaking of the paper might indicate that the German government is ready to chose a "Grexit" if the Greek government does not accede to Berlin's new requests.

But the fact that the document was not put on the Eurogroup table suggests that it could mainly be a means of pressuring the Greek government and a message to the German public that Merkel and Schaeuble are not compromising too quickly.

The issue of trust

At the Eurogroup, finance ministers spent a long time discussing the Greek proposal and request for a new bailout and how the Greek government could give guarantees that it would quickly implement the proposed reforms.

They discussed how Greece could pass a first set of measures in the parliament as soon as early next week.

The issue is crucial as several countries in addition to Germany do not trust the Greek government even after Yanis Varoufalkis was replaced by Euclid Tsakalotos as finance minister and after the Greek parliament endorsed the government's proposals with a cross-party majority on Friday (10 July).

Ministers from Finland, Slovakia, Estonia and Latvia in particular maintained a tough stance on reforms.

"The Greeks must give answers," to some questions, the French finance minister Michel Sapin said: "When are you going to decide? How are you going to do it? When are going to do it? At what pace?".

"This is also what can bring back trust", between the Greek government and its partners, he added.

Another obstacle to an agreement came from Finland.

Its finance minister Alex Stubb said he could not vote for a new bailout for Greece because the True Finns party threatened to leave to government.

The right-wing nationalists True Finns won 17.7 percent of the vote at last April's general election and are the second party in the parliament. Their leader Timo Soini i is deputy prime minister and minister of foreign affairs.

Finland is in a position to block any decision for a bailout in the Eurogroup, where decisions must be taken unanimously.

But Finland's opposition could be bypassed at the ESM board, where an 85 percent majority is enough in case of emergency. Finland holds a 1.7 percent share of the vote in the ESM.

"We had an in depth discussion of the Greek proposals. The issue of credibility and trust was discussed and also financial issues involved," the president of the Eurogroup, Jeroen Dijsselbloem i, said after the meeting.

"The work is still very difficult but the work is still in progress", he said.

The Merkel question

While finance ministers will continue to try to bridge the trust gap and detail measures to be put quickly to the Greek parliament, the political decision to reach an agreement on a new bailout and discuss a Greek debt relief will be left to eurozone leaders.

An emergency euro summit will start at 4pm on Sunday. The main question will be whether Merkel will stick to the hard line expressed by her finance minister Schaeuble.

Such a position would add a Franco-German rift to a possible Grexit crisis, as French president Francois Hollande i was instrumental this week in helping the Greek government to submit proposals that were in line with the creditors' demands.

An emergency EU summit at 28-level is also scheduled after the euro summit. But it was not definitively confirmed on Saturday night, as some sources said it would be necessary only in case of a Grexit.