Utter Chaos Reigns In Greece Bailout Talks

Negotiations between the Greek government and its “troika” of international lenders appeared to be in a state of chaos Thursday, a day after Greece's finance minister had declared in parliament that talks had been successful -- only to be immediately humiliated with a rebuff from his European partners.

After weeks of negotiations with the three creditors to its two sovereign financial rescues -- discussions in which Greece asked those institutions to release the latest round of financing (despite the fact that the country has not been able to meet its side of the bailout deal) -- hour-by-hour leaks to various media outlets seemed to indicate that the top players in Athens, Brussels and Rome were now working against the clock to find a workable compromise.

At issue is a report that the “troika” is supposed to publish this week on the progress of Greece’s promised fiscal consolidation reforms. A positive report is a precondition for Greece to receive the next round of financing that the country needs to plug budget deficits and prop up its ailing banking system.

As it has been known for months that Greece would not be able to achieve promised fiscal consolidation, the government there was negotiating with its lenders for a two-year extension on deadlines -- and the disbursement of bailout funds now -- in exchange for billions more in austerity cuts.

Talks were reportedly highly contentious, breaking down over the course of several weeks before ostensibly ending on Oct. 17, when the European Commission noted "the authorities and staff teams agreed on most of the core measures needed to restore the momentum of reform."

But it now appears that discussions were not as settled as that statement seemed to indicate. A clash on demands that the country’s labor law should shed its provisions for workers’ severance threatened to completely spoil the deal Tuesday, with two of the three parties that form the country’s government coalition noting they were not sure to support a deal.

Evangelos Venizelos, of second-largest Pasok party, had fighting words, telling a press conference that "our partners must understand we are not a protectorate."

That latest dynamic set off a roller coaster of reports over the past 48 hours. First, it seemed Wednesday that the situation was -- again -- finally solved, as Greek Finance Minister Yannis Stournaras told Greece’s Parliament in a speech that negotiations had been beneficial to Greece, which had “succeeded in lengthening” the time the country had to get its fiscal house in order.

But mere hours after that statement, both the International Monetary Fund and the European Central Bank -- two of the three "troika’ members" -- said, essentially, that the minister was lying.

The latest news, according to Hamburg’s Financial Times Deutschland, was that the leaders of Europe might agree to a “partial tranche” approach, whereby the country would be punished for not meeting its fiscal consolidation targets by receiving less than the €31.5 billion ($40.8 billion) it had expected. The rest of the money Greece needs would come from the country delaying or reducing interest payments on its outstanding private bonds obligations.

But such a plan would require the European leadership to ask private bond-holders, who have already seen a 70 percent “haircut” on their Greek bonds holdings, to accept yet another hit. According to Charles Dallara, managing director of the Rome-based International Institute of Finance, which represents private investor interest, no one has reached out to him so far.

On Thursday, Greek Finance Minister Stournaras was back in Parliament, trying to wipe the egg off his face for the previous U-turn, while attempting to blame the whole circus on the smallest of the coalition parties, according to the Wall Street Journal.

Stournaras was speaking to lawmakers even as, according to earlier media reports, he had suffered a physical breakdown in the morning due to “a viral infection and exhaustion” and was told by doctors “to try and rest.”

It seemed that the political system looked to be at its breaking point as much as the finance minister.

Late Wednesday, a Greek official told London’s the Guardian that Athens was on the brink of full political revolt.

“What are they going to do? Are they really going to not give us the installment [to keep Greece's economy afloat] two weeks before the U.S. elections, with everything that entails -- default, bankruptcy, global market turmoil?” the unidentified government liaison said.

“These labor reforms will turn our country into Bangladesh. ... The troika is demanding that we commit suicide.”