Greece: A game of chicken

January 19, 2015

Alexis Tsipras, opposition leader and head of radical leftist Syriza party, looks on as he speaks during a party congress in Athens

With six days until elections, the polls have been remarkably steady in Greece, giving anti-bailout Syriza a narrow but consistent lead that suggests this time next week it will be the largest party in parliament with a mandate to form a coalition government.

The latest poll at the weekend put Syriza’s lead over ruling New Democracy at 3.1 percentage points with 31.2 percent support. The leading party must generally receive 36-40 percent of the vote to win outright. The winning party automatically gets an extra 50 seats to make it easier to form a government.

European Commission President Jean-Claude Juncker has just told us that any new Greek government will have to deliver on the commitments of its predecessors and continue reforms. Syriza is running on a pledge to end austerity policies, reverse some reforms, stop privatisation and renegotiate the country’s debt.

European Central Bank policymakers should be in purdah ahead of their big decision on quantitative easing on Thursday but that doesn’t mean every word won’t be scrutinized in the run-up.

Today, we have Executive Board member Benoit Coeure and Irish central bank chief Patrick Honohan at a Dublin conference along with IMF head Christine Lagarde. Then a whole clutch of central bank and financial sector bigwigs, plus Angela Merkel, will attend a Deutsche Boerse reception.

The ECB poised to buy lots of euro zone government bonds is one reason why Greece probably no longer has the power to wreck the currency area. But a standoff over its debts, and any threat to its membership of the bloc, is something no one wants to risk.

There’s plenty going on in Germany. With inflation now at zero and growth glacially slow, the Bundesbank’s January report will make interesting reading.

Germany’s most powerful union, IG Metall, holds its annual news conference. It is seeking a pay rise of up to 5.5 percent for its members and even the Bundesbank has called for above-inflation pay rises to rev up the economy. But with no inflation, the question is whether pay deals will in fact now fall, with the implications that has for domestic demand.

There are hints that thinking in Berlin is shifting about the need for stimulus. We reported from sources late last week that the government is considering increasing public investment having reached its goal to balance the federal budget a year ahead of schedule.

After the Swiss National Bank’s bolt from the blue, Swiss officials spent the weekend seeking to assure that the shock decision to scrap its cap on the franc would not destabilise the economy with a flood of new euros about to hit the market courtesy of the ECB.

Finance Minister Eveline Widmer-Schlumpf said she expected the exchange rate to settle down at around 1.10 per euro, which she thought the export-orientated country should be able to live with.

Luxembourg Finance Minister Pierre Gramegna has just told us in Hong Kong that he thinks the ECB did indeed act in anticipation of the ECB’s likely adoption of quantitative easing. The SNB may well have intervened after scrapping the cap to stop the franc soaring even further. We could well see more this week.

EU foreign ministers meet with Russia and counter-terrorism top of their in-tray.
Despite emollient noises from EU foreign affairs chief Federica Mogherini, there is little sign that those that count are softening towards Moscow. Germany’s Angela Merkel and France’s Francois Hollande snubbed potential talks with Vladimir Putin and Ukraine’s Petro Poroshenko last week because there was no meaningful ceasefire in eastern Ukraine.

The Kremlin said Poroshenko rejected a peace plan proposed to him last week by Putin.

In Washington on Friday, President Barack Obama and Britain’s David Cameron agreed to keep sanctions on Russia until it stops its aggression in Ukraine. Poroshenko speaks in Zurich later. Ukraine’s military said a “mass operation” over the weekend retook almost all the territory of Donetsk airport in eastern Ukraine lost to separatists in recent weeks.

Security has shot to the top of the agenda following the killing of 17 in Paris at a Jewish store and satirical newspaper Charlie Hebdo while Belgian investigators said a plot to murder police officers across the country had been foiled “within hours or days” of being launched by raids in which two Islamist gunmen were killed.

Obama and Cameron said on Friday intelligence agencies must be allowed to track militants online despite privacy concerns.

Turkish Prime Minister Ahmet Davutoglu is in London having accused his Israeli counterpart Benjamin Netanyahu of terrorism and said Israeli “provocations” such as the bombardment of Gaza were contributing to radicalisation in the Muslim world.

Netanyahu said on Sunday a wave of anti-Semitism and what he called “Islamisation” in Western Europe are factors in a Jewish state push to expand trade with Asia.

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