A moment of truth

February 16, 2015

Greek Finance Minister Varoufakis holds his speech notes before a vote of confidence at the parliament in Athens

A meeting of euro zone finance ministers is tasked with producing a deal to keep Greece solvent, which is acceptable to both sides. A similar meeting last week got nowhere despite seven hours of talks.

Greek Finance Minister Yanis Varoufakis said on Saturday  he believed Athens would reach an agreement with its EU lenders “even at the last minute”. He said the two sides had agreed on a number of issues but privatisations and labour issues remained sticking points.

Government spokesman Gabriel Sakellaridis showed no sign that Greece was easing back on its core demand, saying it could not “continue a programme that has the characteristics of the previous bailout”.

On the other side of the fence, Germany’s Wolfgang Schaeuble is downbeat. He has just said: : “From what I’ve heard about the technical talks over the weekend, I’m very sceptical, but we will get a report today and then we’ll see.”

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 new government’s 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 clear economic logic in easing up on austerity to galvanise growth but there is no question of writing off Greece’s debts.

The euro zone may well move a little to seal an agreement but Prime Minister Alexis Tsipras is likely to have to move considerably further from where he is now. Tsipras says he has a strong democratic mandate. The euro zone says Greece owes them a fortune. Both are right. Something must give.

The European Central Bank has kept the pressure on and could possibly pull the plug on emergency support for Greek banks, without which they will collapse, if no progress towards a deal is made.

Emergency funding for Greek banks will only last until Wednesday when the ECB Governing Council meets to review the situation. It could stop the lifeline for Greek banks if Greece was clearly not in a bailout programme and/or if it judged Greek banks to be insolvent.

If Varoufakis leaves today’s Eurogroup meeting declaring that the bailout will not be extended and there is nothing similar being put in place, Athens will be a big step closer to the edge. The odds are still on some sort of extension to the bailout, even if it is called something else, to allow time for more substantive negotiations. But it is far from guaranteed.

A ceasefire brokered by the leaders of Ukraine, Russia, Germany and France took effect on Sunday and while it has held across much of eastern Ukraine so far, the pro-Russian rebels said it did not apply to the town of Debaltseve, where Ukrainian army forces are encircled.

The Organization for Security and Cooperation, responsible for monitoring the ceasefire, said rebels had denied its observers access to Debaltseve and that firing continued in the town.

The accord could delay the imposition of new sanctions against Moscow, although Washington said it had not taken any options off the table. If the truce fails, Washington has begun openly talking of sending weaponry to Ukraine’s army. EU leaders says wider sanctions are possible if Russia violated the ceasefire agreement.

Today, the EU is due to publish the names of 14 Ukrainians and 5 Russians added to those under visa bans and asset freezes, as well as the names of 9 organisations, 8 Ukrainian and 1 Russian.

Danish police shot dead a gunman in Copenhagen on Sunday they believe was responsible for killing two civilians and wounding five police in separate attacks on a synagogue and an event promoting freedom of speech which was hosting Swedish artist Lars Vilks, who has received death threats for depicting the Prophet Mohammad. Vilks was unhurt.

The gunman believed to have been behind the attacks was a Danish-born 22-year-old known to the authorities because of past violence, gang-related activities and possession of weapons. Prime Minister Helle Thorning-Schmidt said the shootings, which bore similarities to an assault in Paris in January on the offices of weekly Charlie Hebdo, were terrorist attacks.

The eurosceptic Alternative for Germany appears to have won seats in its first western regional assembly in a vote in the city-state of Hamburg. An exit poll showed the AfD on 5.5 percent, just above the 5 percent threshold needed to enter the state parliament. The centre-left Social Democrats were on 46.5 percent with Merkel’s a distant second on 16 percent.

The vote underscores the domestic currents Merkel must negotiate over issues like Greece.

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