Day of reckoning for Greece

December 29, 2014

Greece's PM Samaras addresses the audience during the Economist Conference on "The big rethink for Europe, the big turning point for Greece" in Athens

Greek Prime Minister Antonis Samaras faces a final parliamentary vote on his presidential candidate. Lose and he will have to call snap elections early next year which polls suggest anti-bailout Syriza would win. A result is expected around 1100 GMT.

In the second round of voting last week, Samaras secured the support of 168 of 300 lawmakers for Stavros Dimas, up from 160 in the first bout but short of the 180 he needs in the final tally.

Samaras played his last big card by offering to bring pro-European independents into the government and hold new elections in late 2015 if lawmakers back him.

Recent opinion polls showed Syriza would beat the ruling conservatives if an election were held now but its lead has shrunk. The left-wing party has recently taken a somewhat more moderate line but it is still set on writing off much of Greece’s debt and reversing years of austerity just as the economy returns to growth, a stance that could see Greece shut out of the markets.

German Finance Minister Wolfgang Schaeuble spelled it out over the weekend, saying any new Greek government would have to respect austerity pledges made by its predecessors and debt obligations would not change.

For many Greeks, the vote will be utterly overshadowed by the fate of a passenger ferry adrift in the Adriatic Sea after catching fire. More than 200 passengers remain on board after Italian and Greek helicopter crews worked through the night to airlift people off.

The rouble may have rallied over the past week but it has cost Russia a substantial chunk of its reserves and the economy remains in deep trouble. This morning it has slumped by more than six percent.

Tumbling oil prices have put Russia’s economy on course for a sharp recession next year – a contraction of 4 percent coupled with double-digit inflation, according to the government. Moscow has also had to dramatically increase the scale of a bailout for the first bank to succumb to the rouble crisis.

Last week, reserves dropped by as much as $15.7 billion to below $400 billion, down from over $510 billion at the start of the year. Finance Minister Anton Siluanov said the country’s two rainy day funds would have to be raided and that reserves would be exhausted by 2017 without a change of fortunes or a big cut in public spending.

Russia’s neighbours/satellites have been swept up in the crisis. Belarussian President Alexander Lukashenko dismissed the country’s prime minister, central bank head and other top ministers on Saturday.

With the dynamics of supply and demand suggesting little scope for a big oil price rally only a fundamental calming of tensions in eastern Ukraine is likely to lead to an easing of Western sanctions on Russia and improve the economic picture.

Ukraine’s parliament backed a budget for 2015 early on Monday, a move which could hasten the payment of the next tranche of financial aid under a $17 billion International Monetary Fund loan package.

Swedish Prime Minister Stefan Lofven called off early elections in March next year, which appeared to have been forced on him after a collection of parties including the far-right Sweden Democrats voted down his government’s budget.

Now he has reached a deal with the mainstream opposition that would allow the minority coalition of the Social Democrats and Greens to continue in power and sideline the anti-immigration Sweden Democrats who hold the balance of power in parliament. Whether that marks the high water mark for the anti-immigration party or further feeds public disaffection that the issue is being ignored by the establishment is a big question.

Croatian President Ivo Josipovic faces a tight run-off next month to try to win a second five-year term after failing to secure a majority from voters frustrated by the country’s economic malaise.

The Bank of Israel is expected to keep short-term interest rates unchanged at a record low 0.25 percent for a fourth straight month on Monday, hoping a weaker shekel will boost economic growth and inflation.

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