Eurozone awaits Greek reform list

February 23, 2015

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

A Greek deal has been pulled from the fire at the last moment. The country’s bailout programme will be extended for four months averting a potential cash crunch in March that could have forced the country out of the currency area.

To secure even that, Athens must satisfy its creditors with a list of economic reforms it will submit by close of business today. It’s become clear that Greece had to fold because Greek banks could have quickly collapsed under a welter of deposit outflows.

That pressure means that even if it flunks today’s test it must surely scramble to meet euro zone concerns in the next 48 hours.

That will buy it a window to try to negotiate longer-term debt relief with its official creditors but comes at the cost of a humiliating climbdown. Prime Minister Alexis Tsipras had vowed to scrap the bailout, end cooperation with the so-called “troika” of international lenders and roll back austerity.

Euro finance ministers may sign off on the deal on Tuesday via a teleconference. However, if they have any doubts they will reconvene in Brussels, officials said, a condition insisted upon by Spain, whose government also faces a radical leftist insurgency at an election later this year and is keen that Tsipras gets no special treatment.

Initial indications about the reforms Athens will put forward look vague, focusing on structural issues such as tax evasion and corruption over the next four months without specific targets, according to Greek officials. They may have to be more prescriptive than that.

There may eventually be some scope to lower the primary budget surplus Athens is charged with achieving and extending maturities on some bailout loans. That would allow a small measure of extra public spending but is a pale imitation of what Tsipras promised on the campaign trail. The bailout remains and so does the troika even if the European Commission, IMF and European Central Bank are now referred to individually.

Tsipras was busy declaring victory on Saturday but as those on the other side of the table say it’s what’s written down on paper that counts and the Eurogroup statement offered Greece little but a vague nod to looking at the budget surplus target in the light of prevailing economic conditions.

Markets have reacted positively but cautiously so far today, awaiting for the Greek deal to be signed off. European stocks could open as much as 1 percent higher. Greece has a market holiday.

Russia was cut to junk by Moody’s late on Friday, the second such downgrade. The finance minister said the downgrade would not have a serious impact as Russia’s local currency rating from two other major agencies remains at investment-grade level. Shut out of international markets, local Treasury bonds are currently seen by Russia as the only source of borrowing.

The ceasefire in Ukraine is barely worth the name. Two people were killed on Sunday when a blast struck a crowd at a pro-Ukrainian rally far from eastern Ukraine’s war zone. Kiev arrested suspects who it said had been armed and instructed in Russia.

Pro-Moscow rebels said they would start to withdraw heavy weapons from the front line in eastern Ukraine but the government in Kiev said armoured columns had crossed the border from Russia to reinforce the separatists. If true, it would go further to kill off the truce that ostensibly came into force last Sunday. Moscow has always denied accusations that its forces are fighting in Ukraine.

Secretary of State John Kerry said on Saturday the United States and its allies were discussing additional sanctions against Moscow, accusing it of a “brazen and cynical” stance.

The ripples from Russia’s isolation and falling oil continue to be felt in former Soviet satellites. Azerbaijan devalued its manat currency on Saturday by 33.5 percent versus the U.S. dollar and by 30 percent to the euro.

The Azeri central bank abandoned its dollar peg earlier this month and has spent heavily in recent months to defend the manat which has  been under pressure from a slump in oil prices.

Kerry and his Iranian counterpart Mohammad Javad Zarif met for two hours in Geneva on Sunday to try to narrow gaps before a March 31 deadline to reach a political agreement on Iran’s nuclear programme. They will continue today.

A confidential report by the International Atomic Energy Agency, obtained by Reuters last week, said Tehran was continuing to withhold full cooperation in two areas of a long-running IAEA investigation. That will feed suspicions that it may have researched an atomic bomb.

Germany’s key Ifo index will be closely watched as always following a jump in the flash PMI survey for Europe’s largest economy on Friday.

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