Little upside for Government if Greece secures debt deal

As a week of crucial talks between Greece and the rest of Europe gets underway, the Government is being pressed to clarify exactly what its position is.

This isn’t straightforward, for a couple of reasons.

Firstly, it’s not yet clear what Greece will put on the table at Wednesday’s meeting of EU finance ministers, although it is now evident the immediate “ask” will be for some way to get through the next few months and thus give some time real negotiations to take place.

The suggestion is that an attempt will be made to reach an interim agreement that would allow full negations to take place at the meeting of EU finance ministers early next week.

Another reason is there is little upside for the Government here, but there are political and economic risks.

If Syriza eventually gets a deal, the Government here will face some flak for not taking a tougher line itself in talks with Europe.

If the whole thing turns into a big fight, and Greek default or euro exit is threatened - or happens - then the resulting market upheaval is hard to predict and would pose some threat.

As Suzanne Lynch reports from Brussels today, there is no mood to even consider at the moment how any deal done with Athens might apply to any other bail-out country, us included.

While Minister for Agriculture Simon Coveney, during a radio interview, did say Ireland would pursue any opportunities offered by a Greek deal, the wider issue of peripheral debt is simply not on the agenda now, with the focus purely on trying to avoid the Greek situation escalating.

Irish officials say that Wednesday’s euro group meeting of finance ministers will be having “ talks about talks” with the Greeks - trying to find a way to allow a few months for more detailed discussions to take place.

So fraught have things become that it is not clear if even this can be achieved.

This is due to two problems.

First, the Greek government needs money. Estimates of when it might run short are varied, but a repayment due to the IMF in March could be a crunch point. Second, the Greek banking system need to continue to get funding and the ECB has said that in future it must do so in the main via emergency funding from the Greek central bank, which must in turn be approved by Frankfurt.

The proposals floated by Greece to get over the next few months offer difficulties, mainly because Greece has insisted it will exit the bailout programme and does not want it renewed.

Any lending advanced by the EU rescue fund can only be based on such a programme being in place.

Meanwhile the ECB does not want the Greek government to issue more short-term treasury bills - another potential source of short-term funding - because the only buyers of these are Greek banks and the ECB feels they already have enough on their balance sheet.

The ECB also says continued funding of the banks relies on Greece being in an agreed programme.

Compromise would probably involve Greece accepting some conditions for short-term financing support and Europe allowing some “fudge” on terminology.

If detailed talks get underway, the question is a search for middle ground. Greece’s €320 billion debt pile represents around 175 per cent of GDP.

Lazards, the investment bank advising it, say a €100 billion write down is appropriate, which would allow it to get to a debt to GDP ratio of 120 per cent by 2020, still a high level.

If real negotiations do get going, then the likely route to assist Greece would be to push out debt repayments over a longer period, lowering the debt burden but not actually writing any debt off.

Ireland’s gross debt ratio is currently an estimated 110 per cent, having peaked at 123 per cent. It is still high, but not at Greece’s crisis level and we can borrow money at reasonable rates on the financial markets.

So in terms of EU talks with Greece, the parallels with Ireland are limited, beyond the fact that we are both high debt countries and have obligations to the EU, IMF and ECB.

The Government will argue that Greece should not be allowed an actual debt write-off. The direct reason for this is that Greece owes Ireland €350 million, our share of bail-out funding.

However, there are clearly other political considerations for the Government in any other member state being seen to get an actual write-off of debt, something not offered to us.

What attitude we might take to a Greek rescheduling, and what implications this might have for us, are open questions?

But before that a way to create time for talking is required. Even if both sides want this to happen - to avoid the risks of a stand-off - it remains unclear how this can be achieved with compromises likely to be needed on initial proposals put forward by both sides.