Greece Mulls Referendum as No Deal With Lenders in Sight

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Greek Aid in Question as EU Balks at Debt Proposals

Greece’s anti-austerity coalition is considering calling a referendum on government policy as euro-area finance ministers are set to withhold further aid payments at a meeting in Brussels tomorrow.

European Commission Vice President Valdis Dombrovskis said he doesn’t expect the Eurogroup to make any decisions on Greece on Monday. Reform proposals must first be approved by the Greek parliament and then implemented before the next bailout disbursement is made, Dombrovskis said in an interview with Frankfurter Allgemeine Zeitung.

Dutch Finance Minister Jeroen Dijsselbloem said Greek reform plans are “far from” complete. No disbursements are seen in March, Dijsselbloem, who also chairs the meetings of the currency bloc’s finance ministers, said at an event organized by de Volkskrant in Amsterdam.

Greece’s anti-austerity coalition has so far been unable to agree with creditors on the terms for the disbursement of an outstanding aid tranche totaling about 7 billion euros ($7.6 billion). The deadlock threatens to lead the country into defaulting on its payments, since Greece’s only sources of financing are emergency loans from the euro area’s crisis fund and the International Monetary Fund. Its banks are being kept afloat by an Emergency Liquidity Assistance lifeline, subject to approval by the European Central Bank.

“I can only say that we have money to pay salaries and pensions of public employees,” Greek Finance Minister Yanis Varoufakis told Italy’s Il Corriere della Sera in an interview today. “For the rest we will see.”

Referendum Proposals

In separate interviews this weekend, Greece’s finance and defense ministers said that if the country’s creditors raise requests which aren’t acceptable to the government, then the people of Greece may have to decide on how to break the deadlock. Prime Minister Alexis Tsipras also signaled the referendum option is being considered.

“If we were to hold a referendum tomorrow with the question, ‘do you want your dignity or a continuation of this unworthy policy,’ then everyone would choose dignity regardless of difficulties that would accompany that decision,” Tsipras told Der Spiegel Magazine, in an interview published Saturday.

Greece may call new elections or hold a referendum if European finance ministers reject the government’s reform proposals, Varoufakis told Corriere della Sera. A referendum would only be held if negotiations with creditors fail, spokesman Gabriel Sakellaridis said by telephone.

Euro Membership

The government believes a solution will be found in negotiations with creditors, though it doesn’t expect an aid tranche disbursement decision from tomorrow’s meeting, Sakellaridis said. Any referendum is unlikely, and if held, it would approve or reject government policy, not consider Greece’s euro membership, he added.

Varoufakis never said or meant that the country’s membership in the euro area would be the subject of a hypothetical referendum in his interview with Corriere, the country’s finance ministry said in an e-mailed statement. Implementation an agreement extending the country’s bailout loans proceeds normally, and Greece will repay all financial obligations on time and in full, the ministry said.

Greek Proposals

Tsipras’s administration sent a set of commitments Friday to Dijsselbloem, in the hope that the policy proposals would pave the way for the disbursement of aid.

Two officials representing creditor institutions said the proposals, which include tackling tax avoidance through non-professional inspectors and equipping citizens with chipped smart cards, aren’t enough to unlock bailout funds. Both said the proposals are amateurish and don’t signal substantial progress for Greece meeting the commitments it made on Feb. 20, in exchange for an extension to its emergency support loans. The officials asked not to be identified as negotiations are private.

In his response to Greek proposals, Dijsselbloem pointed out need for the country to continue discussions with the institutions, the chairman’s spokeswoman Simone Boitelle said in a text message on March 7. The aim of the talks between the government and the auditors from creditor institutions will be the implementation of the February euro finance ministers’ decision, Dijsselbloem told Varoufakis in a letter sent on Friday, according to Boitelle.

T-Bill Sales

In the absence of bailout funds, Tsipras said in an interview with Der Spiegel magazine that he planned to use short-term treasury bills to cover any cash shortfall in the coming weeks. The ability of Greek banks to buy these securities is constrained by a deposit outflow and the ECB’s refusal to accept more so-called T-bills as collateral for financing the country’s lenders.

ECB President Mario Draghi poured cold water on Greek lobbying for the government to be allowed to issue more short-term debt, and for Greek banks to be permitted to buy it.

“The ECB is a rules-based, not a political institution,” and can’t provide monetary financing to governments, either directly or indirectly, “when banks bring collateral in order to buy that debt,” Draghi said on Thursday.

ECB Intervention

“If the ECB insists on this decision, which in our opinion is not the right one, then it will be taking on a major responsibility” Tsipras told Der Spiegel. He held a call with Draghi on Saturday, in which he told him that the Frankfurt-based institution shouldn’t succumb to political pressure, a Greek government official said. The ECB should treat Greece the same way, regardless of who its finance minister is, Tsipras said in the call, according to the Greek official.

With about 2 billion euros of debt-servicing payments, including T-bill redemptions and IMF obligations coming due on Friday, Greece’s government has little room to maneuver.

If euro member states, the ECB and IMF “dispute citizens and government’s will, a possible response could be a referendum,” Defense Minister Panos Kammenos said in an interview with Agora newspaper published on Saturday. Kammenos is also the leader of Independent Greeks party, the junior partner in the country’s coalition.

Even as the Greek finance ministry says speculation about a default is nothing more than scaremongering, creditors are getting increasingly impatient, while buffers in Greek state coffers are being depleted. ECB Governing Council member Luc Coene said some comments by the Greek government have left him wondering whether the country belongs in the European economic and monetary union.

“When I hear certain declarations of the Greek government, I ask myself: ‘what are they still doing in this mechanism?’” he is quoted as saying in an interview with Belgian newspaper Le Soir.

If talks between euro-area finance ministers in Brussels fail, the government may have to decide its next step fast.

“Time is running short for Greece” ECB’s Executive Board member Benoit Coeure said in interview with Cypriot newspaper Politis published today.

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