Greek money seems close to running out

May 25, 2015

Greece's PM Tsipras, Malta's PM Muscat, EU Commission President Juncker and France's President Hollande attend an EU leaders summit in Brussels

The smart money has always been on a last-minute deal being done to keep Greece afloat with Athens making most of the concessions and the euro zone and IMF bending only a little. But the chances of a car crash are growing as each day passes.

Prime Minister Alexis Tsipras said on Saturday a cash-for-reforms deal was close and would not involve further pension cuts and harsh austerity. He said he would not yield to “irrational demands” on VAT tax rates and further labour market liberalization and called on the EU and IMF to compromise. Finance Minister Yanis Varoufakis said Greece had moved three-quarters of the way and its lenders should give ground on the final quarter.

The problem is there is no sign of Greece’s creditors doing so. Unless the numbers add up, no more money will be forthcoming and that will require more bitter medicine to be swallowed by the Greek people.

Tsipras got little change from his EU peers at a summit on Friday, with Angela Merkel and Francois Hollande urging him to return to the negotiating table for “intensive work” to wrap up a reform agreement before cash runs out.

After two days of deliberations, Syriza’s central committee approved Tsipras’s line on the negotiations — that a deal should include low primary budget surpluses, no cuts in wages and pensions, a debt restructuring and an investment programme. The hard-left’s call for a clash with lenders was rejected.

Greece faces payments of about 1.5 billion euros to the IMF next month. Officials have already said the next IMF bill on June 5 might be unpayable without outside help. The interior minister said on Sunday the June payments in total were too much for Athens to meet alone.

Spain’s ruling People’s Party was handed its worst result in 20 years in Sunday’s regional and local elections as voters punished Prime Minister Mariano Rajoy for four years of austerity and a string of corruption scandals.

Spaniards opted for change in the shape of new parties – market-friendly Ciudadanos and anti-austerity Podemos. Although the PP got most votes, it and the rival Socialists fell short of overall majorities in most areas. The two parties will have to negotiate coalitions with minority parties in 13 of Spain’s 17 regions. National elections are due later in the year and Rajoy’s position now looks shaky although he could yet capitalize on what is now a robust economic recovery.

Poles will also vote in a new government before the year is out. Polish President Bronislaw Komorowski conceded defeat to conservative challenger Andrzej Duda in Sunday’s presidential election, a result that will set alarm bells ringing for the government. Komorowski had originally been hot favourite. His defeat reflected a sense that Poland’s new-found prosperity is not being shared out equally.

Britain’s David Cameron hosts European Commission President Jean-Claude Juncker for talks prior to seeing Merkel and Hollande later in the week. His Labour party opponents dropped its opposition to an “in-out” referendum by 2017.

Some of what Cameron is demanding from the EU is already in train. The European Commission agreed a plan last week to streamline how EU law is made and to ease the burden of red tape on business. Any curbs on immigration would be trickier and could require treaty change which his EU peers say is neither advisable nor possible by 2017. Cameron has already ditched plans to restrict freedom of movement which is integral to the EU’s rules.

In the end, Cameron can certainly get something from his EU partners and polls suggest at the moment that most Britons would vote to stay in the bloc. The problem for him is that may well not be enough for a big chunk of his Conservative party, which could force a schism.

The Bank of Israel may leave short-term interest rates unchanged for a third straight month as the economy moves closer to exiting deflation but it could be a close call. Six of 10 economists polled by Reuters expect the central bank to leave its benchmark rate at a record low 0.1 percent. Four others forecast a 10 basis point reduction.

Iraqi forces recaptured territory from advancing Islamic State militants near the recently-fallen city of Ramadi on Sunday, while in Syria the government said the Islamists had killed hundreds of people since capturing the town of Palmyra. The fall of Ramadi and Palmyra, at opposite ends of the vast territory controlled by IS, were the militant group’s biggest successes since a U.S.-led coalition launched an air war to stop them last year.

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/