Can US Bring an End to Greek Drama?

1 Jun 2015 | Author: | No comments yet »

Can U.S. Bring an End to Greek Drama?.

ATHENS Greece and its European creditors agreed on the need to reach a cash-for-reforms deal quickly as Athens missed a self-imposed Sunday deadline for reaching an agreement to unlock aid, sources close to the talks said. Greece’s Prime Minister Alexis Tsipras has attacked its creditors for insisting on what he described as absurd reforms which have only held up progress in negotiations for a deal aimed at preventing his country from defaulting. “The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance,” Mr Tsipras wrote in a column published by French newspaper Le Monde. “It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people,” he added.

Investors are bracing for a bumpy ride this week, as the long-running “Grexit” saga – Greece’s potentially catastrophic exit from the eurozone – enters its final stages, with trading rooms around the world worried that the ending could go either way. President Barack Obama antagonized many European governments back in February when he warned that “you cannot keep on squeezing countries that are in the midst of depression,” which was widely interpreted as endorsing the new Greek government’s leftist program. Greece has been locked in talks with its creditors — the European Union, the International Monetary Fund and the European Central Bank — in a bid to unlock €7.2 billion ($A10.3 billion) in bailout funds.

As with all good psychodramas, “Grexit” – which has been running since 2010, when Greece received its first international bailout – has kept investors in suspense right to the end, with plenty of complicated plot twists and surprise character revelations. However, a deal has so far proved elusive as the creditors are demanding greater reforms in return for the cash, which Mr Tsipras’s government — elected on an anti-austerity bill — has refused to match.

European markets rose by almost 2 per cent on Wednesday, after comments from Tsipras that the country was “close” to a deal, amid reports that the two sides were in the process of drafting an agreement. These include a special tax on the very wealthy, greater efforts towards clamping down on tax evasion, and putting broadcasting and other licences up for tender. But these hopes were tempered by the much more prudent German finance minister, Wolfgang Schäuble, who hosed down expectations of an imminent agreement.

In other developments, Mr Tsipras has held a conference call with the leaders of France and Germany to discuss progress in the talks between Athens and its lenders. The Sunday evening call with French President Francois Hollande and German Chancellor Angela Merkel, the second in three days, lasted 35 minutes, “went very well” and it was agreed that a deal must be completed very soon, the officials said. Investors concluded that Athens’ optimism was more to do with a PR strategy aimed at avoiding a bank run in the lead-up to a long weekend (Monday is a public holiday in Greece) rather than reality.

But the lenders have insisted that Greece must wrap up talks at the technical level with adequate concessions on reforms so that its budget and debt numbers add up. Similar optimistic statements emanating from Greek officials in the past few days about “technical talks” in Brussels hadn’t been echoed by other parties. But on the big issues that have held up aid to Greece since last summer—including overhauls to its pension system, changes to its labor market, and agreements on its fiscal targets—Greece and its creditors remain miles apart. Total deposits fell to €139.36 billion ($200.25 billion) in April, down from €145.04 billion in March and over €170 billion just five months ago, leaving deposit levels at Greek banks at their lowest level in more than a decade. In an interview published in newspaper Corriere della Sera on Sunday, Greek Economy Minister George Stathakis said he expected a deal in “a few days”, followed by a meeting of euro zone finance ministers to approve disbursement of the aid.

Asked whether the 300 million euro ($329.49 million) payment to the IMF on June 5 was at risk and there was a question of lumping it together with other installments that fall due next month, Stathakis said: “There shouldn’t be any need. For instance, the IMF is pressing Athens to lift the retirement age to 67 years, Brussels is arguing for a less ambitious number of 65, while Athens wants it to be 62 years. They fear his comments will harden positions on both sides: Eurozone governments won’t appreciate the U.S. interfering in something that isn’t its business. “If the U.S. wants to make Greece its business, it should put its own money on the table,” says one official. Lew risks feeding what they say is the delusion that Athens enjoys protected status because of its geopolitical importance, and that U.S. protections will ensure its brinkmanship pays off. European officials also fear that the U.S. administration underestimates the negative consequences of a eurozone surrender to Greek demands, since not only will this push up Greece’s short- and long-term funding needs to politically unacceptable levels, but also because tearing up eurozone rules could put the long-term stability of the currency union at risk.

In addition, Athens may also be able to claim some share of the €1.9 billion in profits that the ECB has made on its on its holdings of Greek bonds since 2010. In contrast, the IMF believes that these are essential to put Greece’s finances on a sustainable footing and meet the demanding hurdle required under IMF rules for disbursing its cash. And, more than ever, investors will be scrutinising the body language and decoding the language of leading European officials as they try to anticipate the ultimate denouement of this Greek tragedy.

It argues that breaking its rules for Greece would undermine its ability to force other debtor countries to take unpopular measures, putting its own credibility at stake. Yet the IMF’s endorsement of any deal is essential to many eurozone governments to provide political cover to allow them to disburse their taxpayers’ cash in fresh aid for Greece. But European policy makers suspect that the risks of a Greek default would be manageable and argue that the Lehman comparisons are wrong: Of course, traders who bet the eurozone would never let Greece go would be caught out.

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