Financial Crisis ... Greece
Systemic Stupidity

EU rejects Greek request for new loans ... The move makes it all but certain that Athens will default on a €1.6 billion loan at midnight Tuesday.

Burgess COMMENTARY
The combined impact of the political class and the banking and finance class over the last many years has been quite disastrous. The basic financial framework that they are trying to use is broken, but they insist on using its out-of-date ideas when it is clear that such ideas cannot work. Unemployed people are unemployed assets. Get people to work and a lot of problems go away. There are huge projects that should be done and there are people to do them ... but the financial mechanisms to fund them do not exist. Government operates like a huge ATM for the establishment when it should be functioning as a coordinator of projects that enable everyone to be doing something that is of value to society. Banks and bankers have figured out all sorts of products that help banks become wealthy, but products to make society wealthy never seem to emerge. The World Bank Group and the IMF ought to be on the cutting edge of the future rather than being a huge constraint on solving problems. I am appalled ... and because of establishment incompetence exceedingly worried.

Peter Burgess TrueValueMetrics.org
Peter Burgess

EU rejects Greek request for new loans ... The move makes it all but certain that Athens will default on a €1.6 billion loan at midnight Tuesday.

Greece’s eurozone partners rebuffed Athens’ last-minute request for new loans, dashing the country’s last hope to avoid default by midnight.

Greek Prime Minister Alexis Tsipras requested the aid earlier Tuesday in a letter obtained by POLITICO, hoping to win an 11th-hour reprieve. In addition to fresh loans, he asked for some of Greece’s debt to be forgiven.

But after months of tumultuous negotiations, culminating with Tsipiras’ surprise weekend decision to call a referendum on a deal, Greece’s eurozone partners had had enough.

The Eurogroup of finance ministers considered the request during a 90-minute conference call Tuesday night. The group expect another proposal from Athens by Wednesday morning, Estonian finance minister Sven Sester said in a tweet.

Eurogroup head Jeroen Dijsselbloem offered a withering appraisal of Tsipras’ offer on CNN soon after the call ended.

“The political circumstances and political stunts of the Greek government don’t seem to have changed,” he said. “The practical circumstance is that the old program expires” at midnight.

The rejection makes it all but certain that Greece will default on a €1.6 billion loan repayment to the International Monetary Fund due by midnight Tuesday. A default sets a series of levers in motion that is likely to result in Greece leaving the euro.

The default will put immediate pressure on the European Central Bank to reconsider its support for Greek banks.

Unless Greece can secure new funds in the coming weeks, the ECB will have no choice but to cut off its liquidity support for the banks, which would trigger their collapse. The ECB has already limited its support for the banks, a decision that forced Athens to close banks until next week to forestall a run on deposits.

Greece’s bailout also expires at midnight, meaning it will lose access to the remaining funds and would have to negotiate a new rescue if it wants to remain in the euro. But the prospects of such an outcome are dim because Athens would have to agree to accept the same deep budget cuts it has so far rejected in order to secure a deal.

German Chancellor Angela Merkel opposed reopening talks with Greece, according to a source present at a meeting she attended Tuesday afternoon of her CDU/CSU group in the German Bundestag.

When she was told of the Tsipras proposal, the German leader checked in with her Social Democrat governing coalition partner about the offer, the source told POLITICO. She then told her parliamentary group that the government wouldn’t enter into talks with Athens before Greece holds a referendum on July 5 whether to accept the creditors’ economic reform conditions for fresh bailout funds.

What Tsipras asked for would amount to a third bailout, giving it enough money to make debt repayments through 2017. It owes creditors about €30 billion euros during that period. The country has already received two bailouts totaling more than €240 billion.

In the letter, the Greek leader asks the eurozone to invoke bylaws of its bailout fund that allow for the disbursement of money to a member “if indispensable to safeguard the stability of the euro area as a whole.”

On top of a two-year loan, Tsipras asked the Eurogroup to extend the country’s current bailout program, which also expires at midnight Tuesday, “for a short period of time in order to ensure a technical default is not triggered.” Such a step would normally require parliamentary approval in some states — an impossibility given the tight timeline.

While Tsipras didn’t specify how large the loan should be, his letter included a spreadsheet of Greek debt coming due in the next two years. By the end of 2017, Greece has to make payments of some €26 billion, according to the document. Tsipras’ letter states, in line with ESM’s rules, that the loan would be used “exclusively to meet the debt service.”

After that two-year loan period, the prime minster said that Greece expected to be able to return to international capital markets to meet its funding needs.

Tsipras’ letter amounted to a request for a third bailout to make debt repayments through 2017. The country has already received two bailouts totaling more than €240 billion.

The Greek leader is also asking for debt relief, a controversial step that has divided creditors. Even if they agreed, the program would hinge on Greece’s acceptance of the same reforms Athens has so far rejected.

There are other stumbling blocks. Merkel, in particular, has been keen to avoid a third bailout program. Winning support for it in her own party and the Bundestag, Germany’s parliament, would be difficult.

Concerns over what on Monday appeared to be Greece’s inevitable default and possible departure from the euro has weighed on European stock markets, but the euro has remained stable. The currency’s resilience has confounded expectations from Greece and elsewhere that a so-called Grexit would unleash a market panic.

That could mean some eurozone governments will be more willing to risk letting Greece go than they would have been a week ago.

“Lots of countries at this stage are against new money and debt relief,” a spokesman for a eurozone government told POLITICO, calling Tsipras a hypocrite for changing his mind at the last minute on a third bailout.

“This is a move to blame the EU institutions for not being cooperative and make people vote ‘no’ Sunday because there is now a ‘better’ deal to be had,” this person said. “They want something for nothing — there is nothing in the letter on Greece’s obligations to reform.”

Ryan Heath and Matt Kaminski contributed to this article.

PDF-tsipras.pdf-1 The official letter of the Greek government, June 30, 2015 (POLITICO) Tsipras2