Greek claim and counter-claim

May 28, 2015

German Chancellor Merkel and Greek Prime Minister Tsipras leave after addressing news conference in Berlin

Another day of claim and counter-claim.

The Greek government said a deal with its lenders had reached the drafting stage and would not require wages and pensions cuts or reforms to the VAT regime. It didn’t take long for euro zone officials to retort that this simply was not the case and that the two sides remained far apart.

Could this be a smokescreen from Athens prior to a climbdown? No one is sure.

The one concrete suggestion from the past few days is that the Greek government could delay its June 5 payment to the International Monetary Fund, which it may or may not be able to meet, and bundle up the 1.6 billion euros of total IMF bills due in June for payment at the end of the month. The trouble with that is if there’s no cash-for-reforms deal by then it really could be the end of the line.

Talks continue at a technical level and the finance officials who prepare euro zone finance ministers’ meetings are due to hold a call today to take stock.

The Greek saga is bound to figure prominently at a meeting of G7 finance ministers and central bankers in Dresden today and tomorrow. It is chaired by German Finance Minister Wolfgang Schaeuble whose verdict last night was: “We haven’t got much further.” IMF chief Christine Lagarde, also in Dresden, is just out saying there is still much work to do.

U.S. Treasury Secretary Jack Lew signalled yesterday that he wanted the euro zone and IMF to bend a little on their demands in order to facilitate a deal.

There is no sign that they are willing to do so, not least because trust in Alexis Tsipras’s government has run very short. There is also a continued belief, which Lew questioned, that there is now nothing like the contagion threat that a potential Greek exit from the euro zone posed back in 2012.

On the Greek side, it’s worth tuning out the rhetoric and focusing on the facts.

Last weekend, a majority of ruling Syriza’s top committee backed Tsipras’s proposed line — that a deal should include low primary budget surpluses, no cuts in wages and pensions, a debt restructuring and an investment programme – a slate that is completely unacceptable to Greece’s lenders. Moreover, a sizeable minority called for a full-on confrontation and total rejection of any further belt-tightening.

The G7 will also look at the idea of a code of conduct for bankers, a German delegation source said.

Having seen European Commission President Jean-Claude Juncker earlier in the week, Britain’s David Cameron begins a tour of European capitals today to make his case for reforming the EU and redefining Britain’s relationship with it prior to an “in-out” referendum by 2017. His government will also publish legislation to put the referendum in train.

Today, he will meet Danish premier Helle Thorning-Schmidt – who has just called early elections —  Dutch Prime Minister Mark Rutte and French President Francois Hollande. On Friday, he will pay a visit to Polish leader Ewa Kopacz and Germany’s Angela Merkel.

Germany and France this week agreed plans to strengthen cooperation among euro zone countries without changing existing EU treaties, in a potential setback for Cameron who says his plans for EU reform require treaty change.

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. But curbs on immigration 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.

There is a parallel with Tsipras in that both are negotiating with Europe while having to compete their domestic support base onside.

Russia’s army is massing troops and hundreds of pieces of weaponry including mobile rocket launchers, tanks and artillery at a makeshift base near the border with Ukraine, a Reuters reporter saw this week. Many of the vehicles have number plates and identifying marks removed while many of the servicemen had taken insignia off their fatigues.

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