Greece is courting danger by pushing international lenders instead of trying to compromise with reforms-for-cash, world press reports say.
Brinkmanship in Greece: Fasten Your Seat Belts
Business Insider – Mike Bird
The deadline for a deal to resolve Greece’s ongoing drama seemed to be pushed back last week. But new stresses could appear as early as this week if there is no noticeable progress on the talks.
Last week Greece decided to combine the four debt payments it owed to the International Monetary Fund (IMF) in June — worth about €1.5 billion ($1.66 billion, £1.09 billion) collectively — into one, which will be due at the end of the month.
That delayed for three weeks the payment that was owed Friday and meant Athens could wait longer for a bailout deal. But at least according to some analysts, that will be little to no relief in the tense talks.
Much of the timeline actually remains the same, as Bank of America Merrill Lynch researchers pointed out in a note, titled “Brinkmanship in Greece: fasten your seat belts,” on Monday morning.
Previously, the hard deadline for approval of both Greek and other European parliaments was the end of June — and that’s still true now.
Here’s BAML FX strategist Athanasios Vamvakidis:
Greece and its creditors will have to finalize the deal by the end of this week, the Greek parliament will have to approve the deal the following week, and the European parliaments will have to approve it during the last week of June (assuming away problems with the summer recess). Such a deal will have to include at least €5bn to repay the IMF by June 30 and the ECB bonds that mature on July 20 — to cover all IMF and ECB payments during the summer, Greece needs about €10bn.
When it’s put like that, the three weeks left don’t seem like such a long time. Last week’s dramatics suggest that the two sides are still far from a deal, with each presenting proposals and counterproposals that disregard the other’s red lines ….
BAML’s Vamvakidis adds that because positive developments need to start soon for the June 30 deadline to be reached, “we may see negative scenarios unfolding even before June 30.”
Barclays analysts also lay out the potential for political crisis in a note:
In our view, this reflects mounting divergence within the Syriza party, especially about the government’s acceptance of more fiscal measures and pension cuts in order to reach a deal. We think compromise on these thorny issues by the Greek government will be costly politically. It could trigger a political crisis that would accelerate deposit outflows and result in the imposition of capital controls on Greek banks.
So the new June 30 deadline doesn’t actually give the negotiators much more room to breathe, and the inevitable crunch — whether financial or political — is looming.
Backing Greece into a Corner Serves No One
Project Syndicate – Joseph Stiglitz
European Union leaders continue to play a game of brinkmanship with the Greek government.
Greece has met its creditors’ demands far more than halfway. Yet Germany and Greece’s other creditors continue to demand that the country sign on to a programme that has proven to be a failure, and that few economists ever thought could, would, or should be implemented.
The swing in Greece’s fiscal position from a large primary deficit to a surplus was almost unprecedented, but the demand that the country achieve a primary surplus of 4.5% of GDP was unconscionable.
Unfortunately, at the time that the troika — the European Commission, the European Central Bank, and the International Monetary Fund — first included this irresponsible demand in the international financial programme for Greece, the country’s authorities had no choice but to accede
he folly of continuing to pursue this programme is particularly acute now, given the 25% decline in GDP that Greece has endured since the beginning of the crisis. The troika badly misjudged the macroeconomic effects of the programme that they imposed.
According to their published forecasts, they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability.
The troika’s forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece’s voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed programme.
Having said that, there is room for a deal: Greece has made clear its willingness to engage in continued reforms, and has welcomed Europe’s help in implementing some of them.
A dose of reality on the part of Greece’s creditors — about what is achievable, and about the macroeconomic consequences of different fiscal and structural reforms — could provide the basis of an agreement that would be good not only for Greece, but for all of Europe.
Some in Europe, especially in Germany, seem nonchalant about a Greek exit from the eurozone. The market has, they claim, already “priced in” such a rupture. Some even suggest that it would be good for the monetary union.
I believe that such views significantly underestimate both the current and future risks involved. A similar degree of complacency was evident in the United States before the collapse of Lehman Brothers in September 2008.
Merkel Demands Action from Greece to stay in EU
Bloomberg – Arne Delfs, Patrick Donahue, Helen Fouquet
German Chancellor Angela Merkel demanded urgent action from the Greek government to cement its position as a member of the single currency.
Merkel said that fellow Group of Seven leaders meeting at Schloss Elmau, southern Germany, shared her goal of keeping Greece in the currency bloc and also backed her insistence that Prime Minister Alexis Tsipras must deliver an economic program that can satisfy the country’s creditors.
“There isn’t much time left, that’s the problem,” Merkel said at a press conference on Monday following the meeting. “Every day counts now.”
Creditors are growing increasingly exasperated with Tsipras’s negotiating tactics after he rejected the terms of an aid package last week that could prevent Greece being forced out of the euro.
Tsipras’s government last week used a technicality to postpone a payment of about 300 million euros ($336 million) to the International Monetary Fund, and European Commission President Jean-Claude Juncker said the Greek leader had misrepresented the creditors’ position in the talks.
The Greek stock market fell 2.7 percent to reach its lowest level since April. The Athens stock market’s benchmark index has lost 26 percent in the past six months. Greece’s 10-year bond yields rose for a third day to 11.42 percent.
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