Greek talks about talks

February 13, 2015

Greece's PM Tsipras addresses a news conference after an EU leaders summit in Brussels

The Greek standoff is coming to a head.

A day after euro zone finance ministers couldn’t “even agree to disagree” Greek Prime Minister Alexis Tsipras, attending his first EU summit, agreed that Greek officials would meet representatives of the European Commission, the European Central Bank and the IMF today.

That could be significant given a further meeting of euro zone finance ministers on Monday looks like the crunch moment. Any prior work to close the gap between the two sides could be crucial.

“All these discussions and today’s developments signal the intention for a political agreement,” Tsipras told reporters after the summit broke up.

Some of this is semantics – the Greeks will not accept anything that is called an extension of the bailout programme while a bridge sounds fine – but there are serious issues of substance too.

The plan to renegotiate Greece’s debt pile and end debt-cutting will simply not fly given the amount of money Athens owes to European institutions and governments. There is economic logic in easing up on austerity to galvanise growth and thereby increase the tax take but there is no question of writing off Greece’s debts.

The euro zone may well move a little to seal an agreement but Tsipras is going to have to move considerably further. There is still a gulf. Tsipras says he has a strong democratic mandate. The euro zone says Greece owes them a fortune. Both are right. Something must give.

Germany’s Angela Merkel said Berlin was ready to compromise but the bloc’s rules had to be respected while European Commission President Jean-Claude Juncker said any extra Greek budget spending would have to be fully paid for by spending cuts or tax rises elsewhere.

The ECB has kept the pressure on and raised the implicit possibility that if no progress towards a deal is made on Monday it could pull the plug on emergency support for Greek banks, without which they will collapse.

Yesterday, the ECB made available a further 5 billion euros of such funding suggesting the banks’ sources of finance and deposits are ebbing away.

That money will only last until next Wednesday when the ECB Governing Council meets to review the situation. It could legitimately stop the lifeline for Greek banks, which would require a two-thirds majority vote on the council, if Greece was clearly not in a programme and/or if it judged Greek banks to be insolvent.

In other words, finance minister Varoufakis cannot afford to leave the next Eurogroup meeting declaring that the bailout will not been extended and there is nothing similar being put in its place.
To make matters worse, tax collection has fallen short before and after the Jan. 25 election, meaning the government is even shorter of money.

The smart money is on some sort of extension to the bailout, even if it is called something else to soothe Greek pride, to allow more time for substantive negotiations. But it could go horribly wrong. Further compressing the timetable – with Greece’s bailout expiring on Feb. 28 – is the fact that several euro zone parliaments will have to vote on any deal.

Only hours after Germany, France, Russia and Ukraine agreed a ceasefire deal in eastern Ukraine, the United States said continued, intense fighting ran counter to the spirit of the accord. Not the letter because the truce is due to start on Sunday with the withdrawal of heavy weapons from the front line and constitutional reform to give eastern Ukraine more autonomy.

Kiev said there had been a new, mass influx of Russian armour.

The accord could delay the imposition of new sanctions against Moscow, although Washington said it had not taken any options off the table. Secretary of State John Kerry said sanctions could be eased if it was implemented. If not, Washington has begun openly talking of sending weaponry to Ukraine’s army.

At the EU summit, Merkel, France’s Francois Hollande and the European Council said wider sanctions were possible if Russia violated the ceasefire agreement.

January data has so far been a little more robust than expected for euro zone countries and Germany appears to have ended 2014 on a much more solid footing than expected, posting quarterly growth of 0.7 percent, well above forecasts.

No such luck for France which expanded by just 0.1 percent in the final three months of the year, meaning it grew by just 0.4 percent in the whole of 2014. The euro zone figure, due later, is forecast up 0.2 percent but the German performance could lift that. Spain has already reported steady Q4 growth and appears to be turning a corner albeit from a very low base.

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