The Greek plan is in, breath bated

February 24, 2015

Varoufakis arrives at a news conference after an extraordinary euro zone Finance Ministers meeting in Brussels

Greece sent an economic reform plan to its EU and IMF creditors overnight, according to an EU source, and euro zone finance ministers will this morning see the list which is a condition for extending the country’s bailout programme by four months.

Whether it passes muster remains to be seen but the fact that Greek banks would have collapsed by the middle of this week without a deal suggests even if the first iteration falls short, it will meet euro zone demands soon after.

First hints may come from Eurogroup President Jeroen Dijsselbloem who appears at a European Parliament committee this morning. The noises coming out of Brussels are positive so far.

A Greek official said the list would include measures to tackle Greece’s “humanitarian crisis”, regulate tax arrears and bad loans, and end the foreclosure of primary homes. It will also include reforms to tackle tax evasion and corruption, fight fuel and tobacco smuggling, restructure the public sector and cut red tape.

It doesn’t appear to include many figures for euro zone finance ministers to peruse via teleconference this afternoon.

Even if today’s hurdle is overcome it looks like a fraught few months to come with the new Greek government essentially having to negotiate a third bailout programme – whatever it is called – since it will almost inevitably be priced out of the bond market for the foreseeable future.

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 Prime Minister Alexis Tsipras promised on the campaign trail.

He will be able to choose to spend more in some areas but that will by and large have to be met by cuts elsewhere. The overall spending envelope will not change much, Germany has already made clear.

The Spanish government has been particularly keen not to give Tsipras special treatment given the surge in support for Spain’s anti-austerity Podemos part. Prime Minister Mariano Rajoy delivers his annual State of the Nation speech today.

Italy’s Matteo Renzi meets French President Francois Hollande in Paris. Both leaders have sympathy with the idea of throttling back on austerity to get growth going but neither were prepared to give any backing to Tsipras in his bid to win more help for Greece without strings attached.

It’s a big central bank day. Turkey’s faces a new bout of political with the economy minister urging it to take “brave decisions” at today’s policy-setting meeting to spur economic growth. A cut of at least a quarter-point is forecast. In January, the central bank cut by 75 basis points to 7.75 percent only to be berated by President Tayyip Erdogan for not doing enough.

Hungary is expected to be on hold at 2.1 percent but cut further later, to around 1.75 percent by year-end.

Bank of England Governor Mark Carney and colleagues will testify to a parliamentary committee on their recent inflation report. British inflation has hit a record low 0.3 percent but jobs growth is strong and real wages are finally picking up. There is no longer any certainty that interest rates will be pushed up this year.

The main central bank event will be in Washington where Fed chief Janet Yellen testifies to Congress. Minutes to the Fed’s latest policy-setting meeting suggested policymakers might be backing off a June rate rise. But the strongest set of jobs data in many years were published after that late January meeting.

Revised fourth quarter German GDP figures, just out, confirmed solid growth of 0.7 percent with domestic demand leading the way. IG Metall, Germany’s biggest union, has just negotiated an inflation-busting pay rise of 3.4 percent for its members which should further propel consumer spending.

The foreign ministers of France, Germany, Russia and Ukraine hold follow-up talks to try to make the fragile Minsk ceasefire pact stick.

Kiev accused pro-Russian rebels of opening fire with rockets and artillery at villages in southeastern Ukraine on Monday. The Ukrainian military said it could not pull weapons from the front as required under a truce which is not worthy of the name, as long as its troops were still under attack.

Ukraine’s currency fell a further 10 percent on Monday on fears that the ceasefire could collapse. The value of Ukrainian debt also fell, with bonds now trading at 40 cents in the dollar.

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