Tsipras’ High Noon

March 19, 2015

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EU leaders gather for a two-day summit with Greece and Ukraine eclipsing the official economic and energy policy agenda.

European Council President Donald Tusk has called a meeting on Greece for Thursday evening at Prime Minister Alexis Tsipras’ request on the sidelines of the summit with the leaders of Germany, France, the European Central Bank, the European Commission and the chairman of euro zone finance ministers.

That, together with the Greek premier’s visit to see Angela Merkel in Berlin on Monday, looks like a “High Noon” moment.

Greece frustrated its main creditors on Tuesday by refusing to give an update on reforms it is supposed to implement at a scheduled teleconference of euro zone finance officials.

Instead, it insisted that the discussions should be escalated to Thursday’s summit. In doing so, it has made the next few days a make-or-break moment for Tsipras. Euro officials suspect no progress has been made on economic reforms that were stipulated to unlock further loans.

The new government is chronically short of cash as the euro zone keeps the pressure on for an acceptable reform programme. Tsipras will probably press ECB chief Mario Draghi to allow Athens to sell more short-term treasury bills but – unless there is a major change of heart – the ECB has made crystal clear it won’t do that.

Greek demands that Berlin pay World War Two reparations and Tsipras’ accusation that Germany used legal tricks to avoid paying compensation for Nazi occupation of the country hardly seem designed to reach an amicable conclusion.

Tsipras was on the warpath again on Wednesday, telling the Greek parliament that the euro zone should not have questioned a new anti-poverty law  — which offers food stamps and free electricity to the poor — hours before it was voted into law.

In Berlin, German Finance Minister Wolfgang Schaeuble merely said time was running out.
Two big Greek banks, Piraeus and Alpha, are due to report 2014 results. The financial system was perilously close to collapse before a deal – now unravelling – was struck last month to extend Greece’s bailout programme by four months.

The summit won’t tighten sanctions on Russia but there will be debate about the need to act now to prolong existing ones which expire in July. With an uneasy ceasefire in place in eastern Ukraine, the 28 EU nations see no pressing case to impose new measures on Russia.

That still means they have to take a decision about rolling over existing sanctions or letting them lapse. Tusk has discussed a compromise proposal that would link European Union sanctions to full implementation of a Ukraine ceasefire accord.

The decision on whether to extend existing measures is likely to be deferred until June. Ukrainian Prime Minister Arseny Yatseniuk will be in Brussels for the summit.

The leaders are set to agree on the economic policy of the 28-nation bloc for 2015, setting guidelines on fiscal consolidation, investment, etc, which will eventually form the basis for the preparation of 2016 draft national budgets. Also on the agenda are the Digital Single Market and the Energy Union.

The leaders must presumably say something about the massacre of 17 foreign tourists by militants in Tunisia yesterday and offer some support.

The Swiss National Bank hold its first quarterly meeting since it shocked financial markets by scrapping a three-year-old cap on the value of the Swiss franc against the euro. The SNB is expected to keep its benchmark interest rate below zero until at least 2016 and is likely to cut growth forecasts for this year.

The SNB is battling to deter investors from piling into the safe-haven franc after the ECB started printing euros. Sweden is in a similar position, cutting its repo rate further into negative territory out of the blue on Wednesday and expanding its bond purchases, saying it was ready to take further measures as a stronger crown threatens to conjure up deflation.

After the surprise cut in Sweden, Norges Bank is forecast to lower Norwegian interest rates by a quarter point to 1 percent as its oil sector looks at an uncertain future. In December, the central bank surprised markets by cutting rates to 1.25 percent and said there was a 50/50 chance of another cut in March. Since then the oil price has fallen further.

Following the impromptu Swedish rate move, which suggests a high degree of alarm about its strong currency, central bank Deputy Governor Cecilia Skingsley testifies to a parliamentary committee. Earlier this week she did not rule out direct intervention to weaken the crown.

Having launched into quantitative easing, the ECB’s long-term loans to banks – TLTROs – feel like old news but we get a further round today which will propel the bank’s balance sheet higher towards the target Draghi has set. Italian banks are expected to take up the majority of the cheap funds as hopes of a recovery in the domestic economy is seen spurring lending.

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