Greece Invokes Nuclear Option: Tsipras Calls For Referendum

Submitted by Tyler Durden on 06/26/2015 16:00 -0400

inShare Update: Greek PM Alexis Tsipras has announced a referendum in a televised speech to the nation after another day of fractious negotiations with creditors closed without a deal.

The dramatic move comes after Athens rejected a proposal from the troika aimed at delivering some €16 billion in aid to Greece as part of an extension of the country's second bailout program.

• GREECE'S TSIPRAS SAYS CREDITORS POSED ULTIMATUM TO GOVT
• GREECE'S TSIPRAS SAYS CREDITORS PROPOSALS ARE AGAINST EU RULES
• TSIPRAS SAYS CREDITORS AIM TO HUMILIATE GREEK PEOPLE
• TSIPRAS SAYS WILL CALL REFERENDUM ON GREEK DEAL WITH CREDITORS
• TSIPRAS GREEK REFERENDUM WILL BE HELD ON JULY 5
• TSIPRAS SAYS HE NOTIFIED MERKEL, DRAGHI ON REFERENDUM PLAN
• TSIPRAS SAYS GREECE IS, AND WILL STAY PART OF EUROPE
• TSIPRAS SAYS GREECE NEEDS TO SEND DEMOCRATIC RESPONSE TO EU

Protothema now says the Greek parliament will meet on Saturday and a referendum will be called as early as next week. Whether this is simply a last minute attempt to put pressure on EU finance ministers ahead of Saturday's Eurogroup meeting remains to be seen, but one thing is for sure: Tsipras is playing a dangerous game with the ECB ahead of a difficult week that could very well see the imposition of capital controls.
More from Kathimerini:

The government is considering a referendum on the substance of the agreement, according to recent reports, during the enlarged meeting taking place from Friday night at the Maximos Mansion. The referendum is expected to be held next Sunday, while the prime minister has already informed the political leaders. The prime minister after returning from Brussels convened the extraordinary Governing Council at the Maximos Mansion, which after 23:00 turned into cabinet by attendance of ministers and party executives to discuss the latest developments and next steps in view of tomorrow's Eurogroup.

Earlier:
Protothema is reporting that Tsipras has confided in a fellow EU official that if the country's creditors insist on sticking to pension and VAT red lines and if Friday's bailout extension proposal (which the Greek government apparently views as a patronizing stopgap) is the troika's final offer, he is prepared to call for snap elections.
Via Protothema (Google translated):

The dramatic developments of the last few hours, following the government's move to reject the proposal of the creditors may conceal preparation for use of the popular verdict, a decision which is expected to be finalized in the next few hours if the lenders do not move from its rigid positions. According secure information protothema.gr, a few hours ago he Prime Minister Alexis Tsipras European leader confided in Eurozone member country adjacent friendly in Greece that the data are up to this moment is ready even to call early elections. 

This revelation of thought by the Greek prime minister to the foreign leader can be interpreted in two ways: Either Mr. Tsipras is ready "plan B" if tomorrow the negotiation fails or leaked deliberately in order to exert indirect pressure on lenders to mitigate their requirements. Upon completion of the meeting Mr. Tsipras with Angela Merkel and Francois Hollande, the Greek side revealed that the Prime Minister pointed out to the leaders of Germany and France that does not understand why the institutions insist on so hard measures. The prime minister insisted his decision to reject the proposal of the creditors for a five-month extension of the existing agreement with a funding of 15.5 billion euros. "The proposal does not cover us, because the financial part of barely meets the needs for payment of installments to the lenders, not help anywhere else the economy," emphasized a close associate of Alexis Tsipras and adds: "We will not accept the proposal, as we said, we were waiting to bring us another proposal tomorrow."

Greece has rejected creditors' bailout extension proposal.

• GREECE SAID TO REJECT EU15.5B BAILOUT EXTENSION PROPOSAL: ANA

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On Friday, the German press reported (and Bloomberg later confirmed) that Greece’s creditors had presented PM Alexis Tsipras with a document (essentially an outlining the following available funds that could theoretically be part of either an extension of the country’s second bailout or a third program (with the latter having been previously ruled out by the IMF and German lawmakers). The details are as follows:

• EU creditor proposal foresees EU8.7b in EFSF funds: official
• Creditor proposal foresees EU3.3b in SMP profits: EU official 
• Creditor proposal foresees EU3.5b in IMF funds: EU official

As noted, if Greece receives €3.3 billion from SMP profits it will mean that the ECB has forfeited the money it made on the Greek bonds it purchased in the past, effectively allowing Athens to repay the central bank with its own money. Here's DB with some color:

There may be a more rapid disbursement option. EUR1.9bn of the EUR7.2bn stalled tranche is SMP profits. Releasing these funds might only involve a decision by finance ministers without necessarily consulting parliaments. Disbursing EFSF funds, on the other hand, requires the national approval process (e.g., the joint decision by the German Finance Minister and the Budget Committee, if not a full plenary vote). In other words, SMP profits could be disbursed at short notice. These would be sufficient to pay the EUR1.6bn owed to the IMF on Tuesday.

As for the EFSF funds, it's long been suggested that bank recap funds could be chanelled to Athens under the 'right' circumstances and apparently imminent default is as good an excuse as any. Citi has more on the EFSF funds:

The interim proposal would likely allow Greece to use part of the €10.9bn from the original Hellenic Financial Stability Fund (HFSF) designated for Greek bank recapitalization, and later transferred back to the EFSF/ESM. Various media outlets have reported on the possibility that around €9bn could be used for current expenditure, in line with our estimates of the financing needs of the Greek sovereign for 3Q. Although a unanimous agreement will be required at the ESM board level to redirect the resources away from its banking recapitalization objective, we believe that a deal is likely to be found. The release of such funds would allow an extension of the current programme for several months, while giving more time for creditors and the Greek authorities to complete the negotiations for a third aid programme. It could also convince the ECB to increase the T-bill ceiling and the SSM to raise the ceiling on the exposure of Greek banks’ to their sovereign. All this however remains conditional on the approval of the ‘interim’ package by the Greek Parliament as well as by various national parliaments (in Germany, the Netherlands and Finland among others).

German Chancellor Angela Merkel implored Tsipras to accept what she calls a “generous” offer and has been adamant that a deal must be struck by the time the market opens on Monday which effectively means that EU finance ministers will need to strike an agreement at tomorrow’s Eurogroup meeting which starts at 2 pm local time. “I spoke today about a very generous offer because we simply have moved a step toward Greece, also with respect to the February agreement,” Merkel said.
In the wake of this morning’s news, the rhetoric from Tsipras has only hardened with the Greek PM pledging to uphold the democratic values upon which the euro was founded and to not accept “blackmail” (which of course is rather ironic, considering Merkel said precisely the same thing with regard to the Greek on Thursday):

Document of proposals presented to the Greek side by the institutions is “worse than a memorandum,” ANA reports, citing Greek govt officials in Brussels.

Greek Prime Minister Alexis Tsipras says he will defend the European Union’s founding principles of “democracy, solidarity, equality, mutual respect” as he seeks an agreement with international creditors to unlock aid for the country.

“These principles were not based on blackmails and ultimatum, and especially in these crucial times no one has the right to put in danger these principles,” Tsipras tells reporters in Brussels after an EU summit

“The Greek government will continue decisively to give the fight in favor of these principles, to continue to give the fight on behalf of the European people and of course on behalf of the Greek people,” he says. 

For reference, here's a breakdown of what Greece's fiscal situation (i.e. budget deficit) looks like going forward:

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Or, summarized:

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