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Monday, March 02, 2015 12:57 PM

Greece Accuses Spain and Portugal of Conspiracy; 3rd Greece Bailout Discussion Under Way for €30-50 Billion

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Now that Germany has agreed to an extension, allegedly with no more money on the table, Spain confirms what we all knew would happen, Third Greek Bailout Under Discussion.

Euro zone countries are discussing a third bailout for Greece worth 30 billion to 50 billion euros, Spain's economy minister said on Monday, as Athens sought to quell fears it might run out of money before the end of March.

Speaking at an event in Pamplona, in northern Spain, Economy Minister Luis de Guindos said the new rescue plan would set more flexible conditions for Greece, which had no alternative other than European support.

Prime Minister Alexis Tsipras used a televised address on Friday to deny his country would need another international program.

"Some have bet on a third bailout, on the possibility of a third bailout in June. I'm very sorry but once again we will disappoint them," Tsipras said.

Greece has acute and immediate funding problems to overcome, despite the four-month extension to its existing bailout it negotiated with the euro zone last month. To win that, Tsipras had to give up on key pledges made during his election campaign.

The extension averted an imminent banking meltdown. But Greece still faces a steep decline in revenues and is expected to run out of cash by the end of March, possibly sooner.
Options Limited

  1. Greece wants €1.9 billion in profits the ECB made on Greek debt. The ECB wants reforms first.
  2. Greece wants to issue more short-term bonds, having reached a €15 billion cap. The ECB says no.
  3. €7.2 billion remains of the €240 billion bailout programs. Dutch Finance Minister Jeroen Dijsselbloem wants reforms first.
  4. German Finance Minister Wolfgang Schaeuble says no further aid would be paid out until Athens fulfills all the conditions.

Conspiracy Against Greece?
Tsipras accused Madrid and Lisbon of leading a conservative conspiracy to topple his anti-austerity government because they feared the rise of the left in their own countries.

"By European standards, this was very unusual foul play. We don't do that in the Eurogroup, that's not appropriate," a spokesman for Schaeuble told a news conference in Berlin.
War of Words

Acrimony took a huge leap forward as Madrid hit back against Tsipras' conspiracy charges. The Guardian reports Alexis Tsipras Comes Under Fire from Spanish Prime Minister.
Greece’s anti-austerity government has denied that it sees Europe through the prism of “hostile and friendly countries” as the Spanish prime minister Mariano Rajoy hit back at accusations that Spain and Portugal had deliberately tried to topple the new leftist-led administration.

The war of words erupted when Greek premier Alexis Tsipras attacked the sabotage tactics that had, he said, been employed by Lisbon and Madrid in an effort to scupper the chances of a successful end to the negotiations over the eurozone’s extension of the Greek bailout programme.

He accused the Iberian partners of deliberately taking a hard line in the talks because they feared the rise of radical forces in their own countries.

We found opposing us an axis of powers ... led by the governments of Spain and Portugal which, for obvious political reasons, attempted to lead the entire negotiations to the brink,” Tsipras told party members on Saturday.

Their plan was, and is, to wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries… And mainly before the elections in Spain.

Rajoy responded angrily on Sunday, saying that Spain had stood by Greece in solidarity by contributing to the debt-stricken country’s €240bn (£180bn) bailout.

“We are not responsible for the frustration generated by the radical Greek left that promised the Greeks something it couldn’t deliver on,” he said.
Conspiracy or Political Ignorance?

I disregard the conspiracy charges and instead plead political ignorance on behalf of Spain and Portugal.

In particular, Spanish Prime Minister Mariano Rajoy is making a big mistake. Spain can use debt relief. And the citizens of Spain want debt relief.

By taking a hard stance in favor of Berlin, Rajoy adds fuel to the rise of Podemos. Siding with Germany is the wrong thing to do if Rajoy wants to win reelection.

Playing with Fire

Tsipras is a close friend and political ally of Pablo Iglesias, the former political science lecturer who founded Spain’s anti-establishment Podemos movement.

Podemos is currently in the lead in Spanish polls. Elections are later this year.

Recall that the Podemos "Economic Manifesto" Calls for Debt Restructuring, Spain to Abandon the "Euro Trap".

"Spaniards should be aware that it is physically impossible that they can pursue policies that meet the national interest, within the euro as it is designed. The euro was conceived as a real trap, but nowhere is it written that people have to accept it ." said Iglesias.

Also consider Incredible Populist Positions in Podemos' "Economic Manifesto".

An anti-austerity, anti-euro party is leading in the polls. Podemos has an excellent chance of winning the election and putting together a coalition.

The next set of Spanish polls will be very interesting. It's possible the charges by Tsipras unite a rally behind Rajoy. But if not, it's all over for the current prime minister.


Reuters reports Juncker says no talks in the euro zone for a third Greek bailout. Why Reuters would even bother posting a denial like that is the question on my mind.

Recall that Jean-Claude Juncker, former Luxembourg PM and former Head Euro-Zone Finance Minister is famous for saying "When it becomes serious, you have to lie".

If Reuters wants to provide accurate context, it should put in that reference every time it quotes Juncker. In short, there is nothing Juncker ever says that can be trusted.

Mike "Mish" Shedlock

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