Greeks talk up deal prospects, but what has changed?

May 19, 2015

Greece's Finance Minister Varoufakis and Eurogroup chairman Dijsselbloem talk during an euro zone finance ministers meeting in Brussels

In an epic late-night talk show appearance, Greek Finance Minister Yanis Varoufakis said his government was nearing a cash-for-reforms deal with its euro zone partners and the International Monetary Fund that would help it meet debt repayments next month.

If so, something must have changed since Prime Minister Alexis Tsipras declared on Friday that his “red lines” on labour deregulation and pension reform, among others, would not be crossed.

Various deadlines for when Greece might run out of money have already been and gone but it’s pretty certain that it cannot get through the next two months without outside help. The labour minister has just set June 5 – the next IMF repayment date – as the next crunch moment.

Greece faces payments of about 1.5 billion euros to the IMF next month and 6.7 billion euros to redeem government bonds that are held by the European Central Bank and mature in July and August.

Varoufakis proposed Europe’s bailout fund pay for 27 billion euros of its maturing bonds held by the ECB, pledging to repay the fund over a longer term. The move was the latest attempt to revive the idea of a debt swap, a notion that has been roundly rejected by its creditors.

Tsipras has targeted an EU summit in Riga later this week, which is a forum to meet the bloc’s “Eastern partners” like Ukraine, Georgia and Belarus, to secure what he calls a political deal and while there may be talks on the sidelines there is no indication that other EU leaders see it as a chance to settle things. They continue to give the same response: “Talk to the Eurogroup.”

Greek media reported yesterday that European Commission President Jean-Claude Juncker had produced a new plan more favourable to Athens, allowing for a much smaller primary surplus and deferring of pension reforms, but officials in Greece and Brussels were mystified, saying they had seen no such blueprint.

EU leaders have consistently decreed that the Greek government must deal with the Eurogroup of euro zone finance ministers and it seems highly unlikely that the reported plans would be acceptable to Germany.

The European Union executive will present proposals to streamline how EU law is made in a bid to defuse growing hostility from voters and complaints from business about red tape. In doing so, it will go some way to meet demands made by Britain’s David Cameron before he holds an “in-out” referendum by 2017.

Deutsche Bank said it was reviewing whether to move some of its operations from London to Germany as a result of the uncertainty over Britain’s membership of the EU. HSBC has already cited that as one reason why it might choose to headquarter in Hong Kong.

The IMF will release its annual report on the French economy, which grew at its fastest pace in more than two years in the first quarter. French teachers are due to strike over an education reform bill. The teaching profession would normally be natural supporters of Francois Hollande’s Socialist party.

Nigeria’s central bank meets today for the first time since hotly contested elections in March. It devalued the currency by 8 percent last November and scrapped its bi-weekly forex auction earlier this year in a de facto devaluation and has been struggling to defend the naira. The meeting will be closely watched for further action the central bank could take to stabilise the currency now elections are out of the way.

Two key pieces of data today. Germany’s ZEW sentiment index will give an early reading for activity in May after first quarter growth slowed in Europe’s largest economy. UK inflation is forecast to hold at zero in April, with expectations of a first increase in interest rates now pushing back into 2016, particularly if the Conservative government means what it says about the epic scale of public spending cuts it has in the pipeline.

Saudi-led forces have resumed military operations in Yemen after a five-day ceasefire ended late on Sunday. Yemen’s exiled government in Riyadh and the Iranian-allied Houthis blamed each other for a failure to renew the truce. Air raids hit the capital Sanaa overnight.

Thousands of Shi’ite militiamen are preparing to fight Islamic State insurgents who seized the Iraqi provincial capital Ramadi – just 70 miles from Baghdad – at the weekend in the biggest defeat for government forces in nearly a year.

The use of Shi’ite militias in the Sunni province risks sparking more sectarian bloodshed but there appear to be no other options. The United Nations said 25,000 people fled Ramadi after the Islamic State attack.

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