Tsipras' Choice: Total Capitulation or Grexit; Text of 4-Page Eurozone Demands

By: Mike Shedlock | Sun, Jul 12, 2015
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We now have "THE Final Offer Before Grexit" (I think). Of course, more offers will come after Grexit.

The Financial Times has the Four-Page Text of the Eurozone Demands on Greece.

The document is not in a form that can easily be copied. There is a line break of some sort after every character, that even my line break removal tool does not fix.

I retyped most of the document, sometimes shortening sentences or paragraphs, the essential ideas below.

Greece has Three Days to "Rebuild Trust" and Do the Following

MoU Highlights

On Top of That (Mish note: those were the exact words)

Minimum Requirements

The above-listed commitments are minimum requirements to start the negotiations with the Greek authorities. However, the Eurogroup made it clear that the start of negotiations does not preclude any final possible agreement on a new ESM programme, which will have to be based on a decision on the whole package (including financing needs, debt sustainability and possible bridge financing).

Mish comment: the above sentence was retyped exactly as written.

Additional Financing Needs

The Eurogroup takes note of the possible financing needs of between €82 billion and €86 billion. The Eurogroup notes the urgent financing needs of Greece and the need for very swift progress in reaching a decision on a new MoU: Estimated amounts are €7 billion by July 20, and an additional €5 billion by mid-August.

Additional Bank Recapitalization Buffer

Given the accute challenges of the Greek financial sector, a new ESM would have to include a buffer of €10 billion to €25 billion for bank recapitalization, of which €10 billion would immediately be available in a segregated account at the ESM.

No Haircuts

Capitulation or Grexit

In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring.

End of Document

Bloomberg sums it up this way: EU Demand Complete Capitulation From Tsipras.

German chancellor Angela Merkel had her choice, and she made it.

Merkel's Choice

  1. Pony up another €80+ billion to Greece and offer debt relief on top of it, even though a majority of German voters would rather see Greece out of the eurozone.
  2. Push Greece out of the eurozone.

Merkel selected option number 2. This pushed the ball in Tsipras' court.

Tsipras' Choice

  1. Go back against everything he vowed to do and completely give in to Germany, accepting a far worse offer than he had weeks ago
  2. Grexit

Mish Analysis

This proposal is in ways a step in the right direction. Indeed France would benefit greatly if it had to adopt the best of the ideas: loosen work rules, make it easier for businesses to fire employees, reduce state spending, increase retirement age, undertake rigorous reviews of collective bargaining, and fully implement the treaty on stability.

Ironically, not even Germany fully implements the treaty on stability. Instead, the previous two bailout agreements relied on massive VAT hikes with no real reforms.

Greece imploded.

Note that even if Greece does everything asked, the agreement above does not lead to a guaranteed ESM restructuring.

Here is the exact sentence (emphasis in italics mine): "Provided all the necessary conditions contained in this document are fulfilled, the Eurogroup and ESM board of directors may in accordance with article 13.2 of the ESM Treaty, mandate the institutions to negotiate a new ESM programme, if the preconditions of Aricle 13 of the ESM treaty are met on the basis of the assessment referred to in Article 13.1"


If Greece meets the all Eurogroup demands (and the document allows more to come), then if the preconditions in article 13 are met, then the ESM committee may (or may not), tap the ESM.

Meanwhile, Greece is told that no nominal haircuts are coming.

Tsipras' Clear Choice

The wording of this document makes it clear Germany wants to push Greece out of the eurozone.

Please review the final sentence of the proposal. Here it is again: "In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring."

If Greece turns down the offer, it gets "swift" negotiations on a "temporary time out", including the possibility of restructuring.

In contrast Greece has no chance of restructuring if it accepts all of the above demands.

Tsipras would be a fool to accept this proposal.

As I have said all along, Greece's best chance is to default, not pay back a cent, and initiate the reforms it needs to grow over the long haul.

Greece does not need the euro. No country does.



Mike Shedlock

Author: Mike Shedlock

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Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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