Greece, Creditors Fail to Reach Agreement

Greece failed to reach an agreement with its creditors before a meeting with European Union leaders.

Greek Prime Minister Alexis Tsipras met with creditors to discuss how to alter the terms of previously acquired debts, with the hopes of getting creditors to agree on a variety of reforms that would keep the nation solvent. While Greece’s creditors refused his offer, they unanimously agreed on a credit deal with Greece, which the nation rejected.

Greece failed to reach an agreement with its creditors before a meeting with European Union leaders.

Greek Prime Minister Alexis Tsipras met with creditors to discuss how to alter the terms of previously acquired debts, with the hopes of getting creditors to agree on a variety of reforms that would keep the nation solvent. While Greece’s creditors refused his offer, they unanimously agreed on a credit deal with Greece, which the nation rejected.

Greece has a 1.6 billion euro loan payment outstanding to the International Monetary Fund. If the country does not make that payment in days, which it cannot with its current capital access, the country would official face default.

Emergency Lending

The European Central Bank has already promised emergency liquidity to Greece to help it avoid default. The ECB said Thursday that it approved a request from Greece for an emergency injection of capital that will help Greece pay its bills.

As a stopgap, the ECB has approved emergency lending requests from Greece on a daily basis during the recent crisis. At the same time, Tsipras has been meeting with members of the European Commission, the ECB, and the IMF to reach an agreement. Talks remain ongoing, and have yet to reach an agreement.

The EU and IMF have struggled to agree with Tsipras on exactly which reforms are needed to help Greece make its debt payments. While Tsipras has insisted on debt restructuring, such as extending the duration of the loans or tying them to a surplus target, creditors have refused to budget. From their point of view, as well as the German Bundesbank’s, the Mediterranean country needs to enact fiscal reforms while prioritizing the country’s multi-billion euro debt load to foreign creditors.

Terms of Agreement

Greece has proposed that the country see a gradual increase of its GDP surplus, while lenders insist on the surplus rising to 3.5% of GDP by 2018, from 1% this year. Greece agreed to the creditors’ terms, while also agreeing to raise taxes so that they reach 2.9% next year.

Tsipras has insisted on insulating Greek’s pensioners, assuring them that they will not see their pays slashed as part of a deal. However, Greece and creditors are working on reforming the pension system in Greece so that early retirement is less common.

Finally, Greece and its creditors are looking at ways to increase revenues through tax code reforms and a higher VAT, that at a rate to which the government and lenders currently disagree.

Panic and Bank Runs

In Greece, tensions over the ensuing talks have mounted, and average Greeks are preparing for the worst. Many Greeks are withdrawing money from banks and some have stopped paying their mortgages. Some estimates say over 4 billion euros of capital has been withdrawn from Greek banks in the last week. Reports of hoarding food and goods have come in from all over the country.