Tsipras gets no leeway in Riga

May 22, 2015

Latvian President Berzins welcomes Greek Prime Minister Tsipras at the Eastern Partnership Summit in Riga

The Greek government states that a cash-for-reforms deal with the EU and IMF can be finalized in the next 10 days but the other side is much less optimistic and there was no sign of a breakthrough at the EU summit in Riga which Prime Minister Alexis Tsipras had been pinning some hope on.

Tsipras talked with Germany’s Angela Merkel and France’s Francois Hollande last night but got little more than a pointed reminder than he needs to do more to secure funds to avoid default.

German and French statements focused on the immediate need to agree the kind of economic reforms, promised by Tsipras’s conservative predecessors, which are a condition for the EU, European Central Bank and IMF to unlock more cash. Officials say the government could otherwise run out of money in a couple of weeks.

The only thing that would have broken the logjam in Riga would have been a major concession by Tsipras but it appears he is sticking to his “red lines” on labour deregulation and pension reforms. Today, he will talk with European Commission President Jean-Claude Juncker who has given Greece a somewhat more sympathetic ear.

A Greek government spokesman insisted a deal could be done in 10 days and that Greece would meet all its payments in June and would thereafter be eligible for inclusion in the European Central Bank’s quantitative easing programme. That remains to be seen.

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. Officials have already said the next IMF bill on June 5 might be unpayable without outside help.

Britain’s David Cameron is hoping to use the summit as a first opportunity to spell out how he wants to change Britain’s relationship with the bloc prior to an “in-out” referendum by 2017 with other leaders again warning that there can be no question of restricting freedom of movement within the EU.

There seem to be parallels with Tsipras in that both believe, or at least believed, that they could bend the rest of the bloc to their will. Even Cameron acknowledged the process will not be easy or quick.

The main business of the summit is to engage with six ex-Soviet neighbours on the EU’s eastern flank. The bloc again rejected Russian “bullying” but a reluctance to provoke Vladimir Putin means the most pro-Western leaders of the six “Eastern Partnership” countries are quietly disappointed at a lack of firm promises of eventual membership of the bloc.

Last night, at a three-day central bankers’ gathering in the Portuguese town of Sintra, European Central Bank President Mario Draghi said economic conditions in Europe have improved recently but growth remains too low, as does inflation in some countries. Draghi speaks again this morning along with ECB chief economist Peter Praet.

One of the themes of the year so far has been the euro zone beginning to pick up while the United States and China have faltered. But there are reasons to think that might not continue. ECB money printing will continue but the backing up of government borrowing costs, a significant bounce by the euro and the climbing oil price could all curb the recovery in Europe and elsewhere.

Greece is also likely to figure in Sintra. Athens wants the ECB to allow it to issue more short-term debt, which it won’t, at least until a political deal is done. A looming setpiece speech by Federal Reserve chief Janet Yellen later today may eclipse events in Portugal. Expectations for a June U.S. rate rise have pretty much evaporated.

Germany’s Ifo sentiment index is the big data point of the day after Thursday’s PMI – a similar survey – showed the expansion of Germany’s private sector slowed for the second consecutive month in May, suggesting that growth in Europe’s largest economy may have reached a plateau.

Revised first quarter GDP data, just out, confirmed a slowdown in growth to 0.3 percent with domestic demand the main driver as trade dragged. Overnight, the finance ministry said a favourable business environment should support Germany’s economic upswing for the remainder of this year.

There are a clutch of possible credit ratings reviews today – Moody’s is due to look at Britain and France while S&P will run the rule over the Netherlands and Switzerland. Fitch will do Hungary.

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