Greek roadshow

February 2, 2015

French Finance Minister Sapin and Greek Finance Minister Varoufakis pose before a meeting in Paris

A week into government, Greek Finance Minister Yanis Varoufakis will be in London today for talks with investors and his British counterpart George Osborne. He will then fly to Rome where he will be joined by his prime minister, Alexis Tsipras, on Tuesday.

Tsipras is in Cyprus today.

Syriza’s first week in power suggests it is pretty implacable about abandoning austerity and renegotiating the country’s debt pile. Privatisations agreed under its bailout programme have been shelved and it chose an equally anti-bailout coalition partner with which it has little else in common.

After meeting his French counterpart in Paris on Sunday, Varoufakis ruled out Greece taking on new debt, saying the country had become addicted to indebtedness and it was time to go “cold turkey”. He said that if Athens was given until the end of the month to prepare revised debt proposals, it could aim to hammer out a realistic agreement with its euro zone partners six weeks later.

The euro zone position, as expressed by French Finance Minister Michel Sapin to Varoufakis on Sunday, hasn’t shifted either —  Greece could be given more time to pay off its debt if it keeps its budget in balance and maintains promised reforms but the debt will not be written off.

There could be a deal still to be done but it looks further away and expectations that Syriza would soften its campaign trail rhetoric once elected have so far been shown to be wide of the mark.

Even more pressing, the European Central Bank repeated its warning that a deal on extending Greece’s bailout must be found by the end of February or it may not be able to continue giving emergency funding to Greek banks which have seen deposit outflows and severe damage to their share prices.

If Tsipras faced the collapse of his banking system, he may have no choice but to ditch the euro and return to the drachma which would be incredibly weak but give Greece a competitive advantage and the ability to print money. Given that extreme scenario there must be a good chance that Athens thinks again by this time next month, but there is little sign of that so far.

All this and much more will be front and centre for the annual Reuters euro zone summit which comes at a dramatic and volatile time for the currency area with the ECB poised to create more than a trillion euros to try to revive the economy and the Greek conundrum unsolved. British elections also loom large with the EU’s second largest economy possibly edging closer to the exit door.

Many in Germany are unhappy at what the ECB is doing, and are determined Greece must repay its debts, while other countries including France and Italy want to ease up on debt-cutting and spend a bit more, something Berlin is reluctant to do.

Over the course of next week, Reuters is due to interview a number of euro zone finance ministers, at least one ECB Governing Council member, European commissioners in charge of economic policy and political leaders from parties hoping to emulate Syriza’s achievement in Greece.

Germany’s Angela Merkel will visit Budapest for talks with Hungary’s Viktor Orban who has positioned himself closer to Russia than most of the EU would like.

Budapest also hosts a major conference featuring ECB Executive Board member Benoit Coeure, three national euro zone central bank chiefs and Turkey’s central bank head among others.

War has returned to eastern Ukraine with a vengeance. Peace talks on Ukraine collapsed on Saturday after just over four hours with no tangible progress towards a new ceasefire but with Ukraine’s representative and separatist envoys angrily accusing each other of sabotaging the meeting.

President Barack Obama’s administration is taking a new look at providing Ukrainian forces with defensive weapons and equipment in the face of a rebel offensive that shattered a five-month truce, the New York Times reported on Sunday.

Some upbeat data from Germany and Spain in recent days will put manufacturing PMI surveys for euro zone countries in January into the spotlight. China’s PMI showed factory sector unexpectedly shrank for the first time in nearly 2-1/2 years in January and firms see more gloom ahead.

Italian lawmakers elected Sergio Mattarella, a constitutional court judge and veteran centre-left politician, as president on Saturday, handing a welcome political victory to Prime Minister Matteo Renzi which will allow him to refocus on his economic reform programme.

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