The end game approaches

June 4, 2015

Greek Prime Minister Tsipras walks with European Commission President Juncker ahead of a meeting at the EU Commission headquarters in Brussels

One way or another, the end game for Greece approaches.

Last night, Greek Prime Minister Alexis Tsipras left talks with senior EU officials in Brussels saying a deal with creditors was “within sight” and that Athens would make a payment due to the IMF on Friday.

But while the European Commission said progress was made, the Greek government still rejects benefit cuts and tax rises its EU and IMF creditors want before they release fresh loans to avert bankruptcy.

Greece’s Deputy Shipping Minister Thodoris Dritsas is out this morning saying Athens would not “surrender” to demands by its international creditors in negotiations for a cash-for-reforms deal. “What appears to have been discussed and to have been proposed by Juncker during his meeting with the Greek prime minister is beneath expectations in every way,” he said.

Both EU economics commissioner Pierre Moscovici and European Commission President Jean-Claude Juncker will address a policy forum in Brussels today.

Greece and its creditors are brandishing rival blueprints for what is required to free up the money remaining in the country’s bailout which expires at the end of June.

There is a big gap on economic reforms but specifically on the level of primary budget surplus required this year, the divide is narrow – the Greeks say 0.8 percent of GDP, its lenders want 1.0 percent. That represents a concession by the EU and IMF.

On how to get there, the two sides are still far apart. Athens has offered to curb early retirement to save on pension payouts – that alone will cause howls of outrage in Tsipras’s Syriza party — but the lenders want cuts in supplementary pensions, a smaller civil service and an easing of private sector layoffs to make the economy more competitive.

Nonetheless, there looks room for a deal to be done on the overall fiscal impact though to make the numbers look like they add up, the EU and IMF are demanding much larger primary surpluses in future years – another example of the “extend and pretend” strategy we’ve seen through the euro zone debt crisis?

Also, over the first half of the year, tax revenues have dwindled and the economy has slid back into recession. As a result, any cuts to meet annual targets must be delivered in just six months so even a much lower fiscal surplus is tough to meet.

But the mere fact that there is some movement on both sides suggests the will to reach an accord remains.

Tsipras talked to Angela Merkel and Francois Hollande before flying to Brussels with Greek officials saying they agreed on the need not to run too high a budget surplus which would squeeze the life out of the Greek economy. Hollande said “asking too much of Greece could stifle growth. But asking too little would have consequences for the euro zone as a whole.”

The IMF and the euro zone can only hand over more aid if they can at least maintain the pretence that Greece’s budget numbers add up and its mountainous debt can be put on a downward path.

Time is short. Tsipras said Athens would meet a 300 million euros repayment to the IMF on Friday but it must pay the Fund 1.6 billion over the course of this month and if no deal is struck by the end of June, the game is over and default must surely follow. The latest deadline being bandied around is June 14 but many of those have already been and gone.

The Bank of England meets today and is nailed on to leave interest rates at 0.5 percent. With inflation non-existent, a first rate rise is now not expected until 2016.

The Bank of France has just published GDP forecasts which puts growth at 1.2 percent this year and 1.8 percent in 2016 though, for now, unemployment continues to climb. President Francois Hollande has said he would not stand for a second term in 2017 if unemployment is not falling before then.

Ukrainian troops and pro-Russian separatists fought their first serious battles in months on Wednesday and Ukraine’s defence minister said an attempt by rebels to take the eastern town of Maryinka had been thwarted.

Five Ukrainian servicemen were killed in fighting near the government-held town where pro-Russian rebels were trying to make a significant advance, a presidential aide said.

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

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