Greece bailout negotiation: Who will blink first? - HSBC

The Eurogroup meeting on 22 May was unable to sign off the second Greek programme review, but its chief, Jeroen Dijsselbloem, was optimistic about the prospects of achieving a deal at the Eurogroup meeting on 15 June, which would leave enough time to enable Greece to meet the cEUR7bn interest and debt redemptions in July and avoid a default, explains Fabio Balboni, European Economist at HSBC. 

Key Quotes

“With one week to the 15 June meeting, the progress on the main outstanding element towards striking a deal on debt relief has been limited, although all of the key players have made their positions clear:

• Germany wants the IMF to be involved in the bailout, but only wants to provide additional debt relief at the end of the programme (mid-2018) as specified in the May 2016 Eurogroup agreement, and in any case it does not want to provide additional debt relief measures on top of what the Eurogroup had already agreed, as this would require approval from the German parliament before its September elections.
• The IMF requires specific debt relief measures to run a successful Debt Sustainability Analysis (DSA) and to be able to participate in the bailout, although its head, Christine Lagarde, said recently that it could agree to a programme "in which the disbursement only takes place when the debt measures have been clearly outlined by the creditors" (Handelsblatt, 15 June).
• Greece has said that clarity on debt relief upfront is paramount for the programme's success, allowing it access to QE and therefore to regain access to markets. Indeed, the central committee of the ruling party Syriza has said the IMF proposal "does not contribute positively in the direction of finding an honourable and commonly accepted solution" (Reuters, 6 June). 
• The ECB has said that they "don’t formally need the IMF to be on board but it would clearly give us comfort if the IMF was on board in terms of the credibility of the debt measures" (Benoit Coeuré, 18 May), adding that "a sufficient degree of specificity" and "clarify about debt measures is also a necessary condition" for Greek bonds to be eligible under QE (Benoit Coeuré, 31 May).”