Greece Pins Hopes on Merkel as Rescue Talks Yield Scant Progress

31 May 2015 | Author: | No comments yet »

Greece Pins Hopes on Merkel as Rescue Talks Yield Scant Progress.

Greece’s government is confident of reaching a deal with its creditors this week and is open to pushing back parts of its anti-austerity program to make that happen, the country’s interior minister said on Saturday. ATHENS Greece and its creditors were continuing talks on a cash-for-reforms deal but are expected to miss a self-imposed Sunday deadline for reaching an agreement to unlock aid, sources close to the talks said.

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. With technical talks yielding no breakthrough, Greek Prime Minister Alexis Tsipras might seek the intervention of German Chancellor Angela Merkel and French President Francois Hollande. 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. Simon Nixon of The Wall Street Journal, for example, argued last week that talks between Athens and its lenders were going nowhere, so the eurozone and the International Monetary Fund should present Greece with a take-it-or-leave-it offer, set a deadline and say they would cut off its banks if it didn’t agree.

He did not elaborate on what parts of the ruling Syriza party’s anti-austerity program could be pushed back, but the comments suggested a greater willingness to compromise on pre-election pledges. The three leaders are scheduled to hold a call on Sunday evening in the context of “political negotiation,” the Athens News Agency reported today, citing unidentified Greek government officials. 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. The government last week said it hoped for a deal by yesterday, though international lenders have been less optimistic, citing Greece’s resistance to labor and pension reforms that are conditions for more aid.

But these hopes were tempered by the much more prudent German finance minister, Wolfgang Schäuble, who hosed down expectations of an imminent agreement. The standoff over the terms attached to emergency loans has triggered a liquidity squeeze and record deposit withdrawals, tipping the economy back into recession. “The positive statements from Athens are necessary to mitigate the pressure on deposit outflows,” said Ricardo Garcia-Schildknecht, an economist at UBS AG. “Our baseline view remains an agreement, but negotiations are set to remain difficult, with more pressure probably needed.” With negotiations now in their fifth month, creditor institutions are seeking concrete action in areas including the pension system, labor market and sales tax. Stathakis was confident a deal will be reached: “Otherwise, mainly Greece, but the European Union as well will step into unchartered waters and no-one wants that.”

The biggest hurdle is their insistence on additional fiscal measures of as much as 3 billion euros ($3.3 billion), a Greek official with knowledge of the matter 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. Even if such tactics made Athens come to heel in the short run, the government would have no ownership of the program, meaning there could be little confidence that it would implement it properly. 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.

This interpretation was reinforced by damaging figures released by the European Central Bank last week showing that Greece’s embattled banks are experiencing a pick-up in deposit outflows. Asked whether the debt payment to the IMF on June 5 was at risk and there was a question of lumping it together with other instalments that fall due next month, Stathakis said: “There shouldn’t be any need. Greek shares were little changed in May, with the benchmark Athens Stock Exchange index gaining 0.3 percent, as local reports of progress were followed by stark warnings from European officials about the risks of impeding default.

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. The nation’s bonds delivered a 0.36 percent return in the last month, according to Bloomberg’s market-value weighted index of the country’s sovereign notes. The creditors’ most important concession so far has been that they no longer insist on Greece’s achieving an unrealistic 3 percent primary fiscal surplus — which excludes debt payments — this year and seem prepared for a target of around half that. Negotiations will commence afresh this week aimed at breaking the impasse over what reforms Athens must agree to in order to access its remaining €7.2 billion in bailout funds.

Meanwhile, the leftist government, led by Alexis Tsipras, has agreed to “marginal changes” to sales tax rates and has acknowledged that privatization will proceed in some form. Tsipras has long sought a political push to end negotiations and get aid flowing to his cash-strapped country, though 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. With just four weeks before a euro-area-backed bailout expires, Finance Ministry officials have told Greece there’s not time to get a disbursement approved by the currency bloc’s parliaments unless they reach at least a technical agreement by the beginning of June.

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. One of the reasons Greece has failed so miserably in the past few years is that the people never believed in the reforms they were being forced to adopt. Like a patient who takes the first few doses of an antibiotic and throws the rest in the trash, Greece never finished the treatment, with the result that the infection was not defeated. 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. After all, Immanuel Kant, perhaps Germany’s greatest philosopher, made a critical distinction between heteronomy — following laws made by others — and autonomy.

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 is easy to see how doing so would fit into the script told by Greek nationalists, both on the right and left, that foreigners are always dictating to it.

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