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Not again?! Greece falls out with its lenders

Euro zone finance ministers are expected to meet in the new few weeks to discuss the continuing problems surrounding Greece and its third bailout as the country falls out, yet again, with its lenders.

The head of the Eurogroup, Jeroen Dijsselbloem, said on Wednesday that there was no set date for a meeting but that there was a sense of "urgency" over Greece and its fought-over 86 billion euro ($97.6 billion) bailout.

"I don't have a deadline, although there is a sense of urgency that we all share, so we'll have to see whether it can be next week or ultimately the week after," he told reporters in Paris after talks with French Finance Minister Michel Sapin, Reuters reported.

Nicolas Koutsokostas/Corbis via Getty Images

A meeting to discuss Greece was due to take place Thursday but was canceled due to a lack of progress in identifying the necessary Greek government reform actions. Now, an extraordinary meeting of the Eurogroup is expected to be held ahead of a scheduled gathering on May 24.

A major stumbling block between Greece and those overseeing its third bailout program – the Eurogroup, European Central Bank, European Commission and International Monetary Fund (IMF) – is what happens if Greece fails to meet its fiscal targets by 2018.

Lenders want a contingency plan enshrined in law that would automatically trigger spending cuts in case Greece fails to meet its fiscal targets, but Greece has said it cannot legislate on a hypothetical event. It has also proposed an automatic "fiscal correction" mechanism that could kick in in such a scenario but the IMF has insis–ted on legislation. Dijsselbloem also commented yesterday that such contingency measures were not unusual.

What next?

Analysts following the talks between the two sides explained what could happen next.

"The lenders want to see a menu of credible and specific measures to be legislated upfront and with automatic triggers (should Greece fail to meet fiscal targets by 2018)," Wolfango Piccoli, co-president of risk consultancy Teneo Intelligence said in a note on Wednesday.

"This is important, not least because without this contingency package, the lenders will hardly be willing to discuss the prospects of debt relief demanded by Athens and – crucially – the IMF, which the creditors are eager to keep on board."

Despite the IMF being on Greece's side when it comes to debt relief (it has consistently said it would not take part in a third bailout package without debt relief discussions for Greece, which have yet to be held due to the ongoing talks over reforms and targets), Athens accused the IMF on Wednesday of undermining negotiations on the next release of bailout funds that the country desperately needs.

Funds can only be released when lenders conclude a "review" of Greece's commitments to economic reforms. But a Greek government spokesperson said the IMF's demands went beyond the initial bailout deal agreed in 2015.

"The legislation of 'contingent' measures — as insisted on by the IMF — moves outside the boundaries of the Greek constitution and outside the boundaries of the European legal system," Greek government spokeswoman Olga Gerovasili said in a press briefing on Wednesday, according to the Greek Reporter.

The "fiscal correction" mechanism proposed by the Greek side, by contrast, met all the conditions raised by the Eurogroup last week in terms of being automatic, objective and reliable, while it was also legal to vote into law, she added, according to a report yesterday on

Another fudge?

Daniel Morris, senior Investment strategist at BNP Paribas, told CNBC on Thursday that recent history – specifically, months of fraught talks between Greece and lenders over a bailout last year – had proven that some kind of solution would be found to break the ice.

"We've been here before and the pattern seems to be that we'll move up towards a deadline and there'll be some anxiety but I think what is most relevant for investors right now is not any type of return to euro zone crisis like 2011 and 2012," he said, adding that the euro zone would eventually come to some sort of agreement over Greece.

Greek Prime Minister Alexis Tsipras now faces the unedifying prospect of having to get political backing for the contingency package from the Greek parliament. Piccoli explained why this might be difficult:

"Tsipras would likely be able to sell to his own Syriza (party) any design of the contingency package that would introduce, as proposed by Athens, cuts of 5 percent across the board. However, this proposal is not considered as credible by the IMF and Berlin. On the flipside, any package design that would force Athens to commit upfront to more specific measures, as advocated by the lenders, would be much harder to sell. In that case, the risk of early elections would increase again," he warned.

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