Watching Draghi at the IMF

May 14, 2015

European Central Bank President Draghi and Vice President Constancio leave after addressing an ECB news conferenc in Frankfurt

European Central Bank President Mario Draghi is in Washington for talks at the International Monetary Fund and will deliver a speech there. Presumably Greece will be item 1, 2, 3 and 4 on the agenda.

With the euro zone and Athens still far apart on a cash-for-reforms deal, the Greek government’s financial position is parlous. It managed to pay a 750 million euros bill to the International Monetary Fund on Monday but had to tap an emergency IMF holding account to do so. There had been doubts whether the government would pay up or opt to save cash to pay salaries and pensions.

The government wants the ECB to give it leeway to sell more short-term debt to Greek banks to stay afloat in the short-term. It doesn’t look like the Eurogroup’s lukewarm progress report earlier this week gives any prospect of the ECB cutting Athens more slack.

Greece’s negotiating team will continue talks with the country’s international creditors to reach a deal, a government official said on Wednesday night after a cabinet meeting chaired by Prime Minister Alexis Tsipras, the third in four days. But the official said the government’s “red lines” had not shifted.

GDP data on Wednesday showed Greece slid back into recession in the first quarter, having exited a six-year slump in 2014. That illustrated the damage being wrought by this uncertainty but the government would counter that it also shows the inadvisability of demanding yet more austerity which will drive the economy further down, cut tax receipts and probably see the country’s debt mountain spiral further.

Much of Europe is on holiday for Ascension Day today which means activity is likely to be subdued on Friday too.
The European Bank for Reconstruction and Development holds its annual meeting in Georgia. It has already said it will “backload” its spending in Ukraine this year and probably would not resume lending to Russia any time soon. Kiev’s finance minister, Natalie Yaresko, and top Russian negotiator Sergei Storchak are both attending the meeting.

Ukraine and its bondholders are at loggerheads over a debt restructuring plans with its private creditors group rejecting any writedown on the principal owed. Nearly bankrupt Ukraine has set itself a June deadline to get a deal in place with creditors including Russia over around $23 billion worth of debt earmarked for restructuring. But progress has been slow, with little movement from either side.

One of the big questions arising from the UK election is whether anti-EU UKIP has built a base from which to grow further or has hit its high water mark with an “in-out” EU referendum to be held by 2017. It only secured one Westminster seat but took four million votes and came second in around 120 of Britain’s 650 constituencies. Under a proportional representation system it would have more than 80 MPs.

Cracks are starting to show. Charismatic leader Nigel Farage resigned last week, then “unresigned” a few days later, a move the party’s only Westminster lawmaker pointedly did not endorse. Now senior party figure and campaign chief Patrick O’Flynn has launched a startling attack on Farage, calling him a “snarling, thin-skinned, aggressive” man who is turning UKIP into a personality cult.

British house prices rose at their fastest rate since August last month and the country’s lack of affordable housing is now a “national emergency”, the Royal Institution of Chartered Surveyors said in a report overnight. It urged Prime Minister David Cameron’s newly re-elected government to do more to directly support home-building.

President Barack Obama will seek to convince Gulf allies including Saudi Arabia that the United States is committed to their security despite deep concern among Arab leaders about U.S. efforts to broker a nuclear deal with Iran. Tension over U.S. policy toward Tehran and Syria will loom over the summit and Saudi King Salman has pulled out of attending.

The head of Burundi’s army said an attempted coup had failed and forces loyal to President Pierre Nkurunziza were in control, a day after another general said he had sacked Nkurunziza for seeking an unconstitutional third term in office.

Nkurunziza’s aides dismissed the declaration by Major General Godefroid Niyombare, who was fired as Nkurunziza’s intelligence chief in February but the president’s whereabouts are unclear and fighting is raging around the headquarters of the state broadcaster.

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