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

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 says 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 says reforms first.
4. German Finance Minister Wolfgang Schaeuble says no further aid would be paid out until Athens fulfilled 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.

Countries that had to implement their own reforms in return for outside help, such as Ireland, Portugal and Spain, have joined Germany in arguing Greece should not get preferential treatment.

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.

Spanish Prime Minsiter Mariano Rajoy is making a big mistake. His country country could use debt relief. And the citizens of Spain want debt relief.

By taking a hard stance in favor of Berlin, Rajoy add fuel to the rise of Podemos.

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. One of the platforms of Podemos is to abandon the euro.

Siding with Germany is the wrong thing to do if Rajoy wants to win reelection. The next set of 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.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com