Some progress cited in Greek talks, but not enough

April 22, 2015

Greek Finance Minister Varoufakis walks past  Eurogroup Chairman Dijsselbloem at a euro zone Finance Ministers meeting in Brussels

Euro zone finance deputies are due to hold talks today on how to rescue Greece but appear to have little concrete to work on with Athens yet to produce a new economic reform programme after the first one was declared full of holes.

The officials are supposed to prepare the ground for a euro zone ministerial meeting in Riga on Friday.
It wasn’t long ago that both Greece and the euro zone declared a reforms-for-funds deal had to be struck by then to avert disaster. Now all the talk is of a following Eurogroup meeting on May 11 being the crunch moment. A 750 million euros IMF bill is due a day after that.

Greek officials have told Reuters that the government may soon have to choose between making such payments or paying state wages and pensions.

A number of euro zone officials have said progress is being made in talks with Athens but not to anywhere near a point where remaining funds from the country’s bailout programme could be disbursed. Greek Finance Minister Yanis Varoufakis told reporters that there was convergence and expressed optimism that a pact would be reached although it may not happen in Riga.

Key European Central Bank policymaker Benoit Coeure told a Greek newspaper the ECB would continue to provide liquidity to Greece’s banks as long as they remain solvent and have sufficient collateral and said there had been “tangible progress” in discussions with the ECB, European Commission and IMF, who were formerly known as the troika. But he added: “Significant differences on substance remain and substantial further work is needed.”

The ECB also appears to be tightening the screw. Other media report that the terms on which Greek banks can access Emergency Lending Assistance will be toughened. The New York Times said the value of collateral that Greek banks post at their central bank to secure emergency loans be cut by as much as 50 percent.

Emerging markets have been roiled by the strong dollar/weak euro. Turkey’s central bank meets today, still under political pressure from President Tayyip Erdogan and his government to cut interest rates more dramatically despite high inflation and a tumbling lira which hit a new record low last week.

All 16 economists in a Reuters poll expected interest rates to be left on hold despite the currency’s slide. A rate hike appears out of the question with growth slowing and elections looming. The bank said last week it would consider a “measured cut” in its forex depo lending rate, the rate at which banks can borrow emergency dollar funds, and a measured hike in the amount it pays banks on lira reserves.

Investors are worried about political meddling in monetary policy, the make-up of Turkey’s economic team after the election and the possibility that the ruling AK Party may not be able to form a government on its own after June elections.

The Bank of England will release minutes of its meeting earlier this month. Given inflation hit zero in March, all nine rate-setters are expected to have voted to keep interest rates at a record low 0.5 percent.

Saudi Arabia is ending a month-long campaign of air strikes against the Houthi rebels who seized large areas of Yemen and said it would back a political solution to bring peace to its war-ravaged neighbour. Oil prices dived in response. Having climbed nearly $10 a barrel this month, Brent crude has added to Tuesday’s fall of more than a dollar this morning.

Iran, which has supported the fellow Shi’ite Houthis, welcomed the ceasefire, which followed months of factional fighting between the militant group and forces loyal to the government, which was driven out of the capital Sanaa.

Ukraine President Petro Poroshenko visits France where he will seek to learn more about Western support for a peace settlement in the east and continued sanctions pressure on Russia.

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