The coming week will go a long way to dictating whether Greece remains in the euro zone. A meeting of euro zone finance
ministers on Monday is tasked with producing a deal that will keep
Greece solvent and which is acceptable to both sides.
A similar meeting last week, marking Greek finance chief Yanis Varoufakis' debut, got nowhere over seven hours of talks.
Some of this is down to semantics – the Greeks will not accept an extension of the hated bailout program while bridging financing sounds fine – but there are serious issues of substance too and there is a gulf to overcome.
The new government's plan to renegotiate Greece’s debt pile and end debt-cutting will not fly given the amount of money Athens owes to European institutions and governments.
There is economic logic in easing up on austerity to galvanize growth and increase the tax take. The euro zone could move a little in that direction but Prime Minister Alexis Tsipras is likely to have to move considerably further from where he is now.
Tsipras says he has a strong democratic mandate to pursue a new deal. The euro zone says Greece owes them a fortune. Both are right. Something must give.
The European Central Bank has kept the pressure on and could possibly pull the plug on emergency support for Greek banks, without which they will collapse, if there is no progress toward a deal.
Last week, the ECB made available a further 5 billion euros of Emergency Lending Assistance (ELA). Banking sources told Reuters it did so because deposit outflows have picked up and also to ensure sufficient liquidity while the standoff persists.
That money will only last until Wednesday when the ECB Governing Council meets to review the situation.
It could stop the lifeline for Greek banks if Greece was clearly not in a bailout program and/or if it judged its banks to be insolvent. That would push Athens a big step closer to the edge.
"A continuation of the deadlock on Monday will immediately shift focus to Wednesday’s bi-weekly ECB review of the ELA limits of Greek banks," said Deutsche Bank strategist George Saravelos.
Some of this is down to semantics – the Greeks will not accept an extension of the hated bailout program while bridging financing sounds fine – but there are serious issues of substance too and there is a gulf to overcome.
The new government's plan to renegotiate Greece’s debt pile and end debt-cutting will not fly given the amount of money Athens owes to European institutions and governments.
There is economic logic in easing up on austerity to galvanize growth and increase the tax take. The euro zone could move a little in that direction but Prime Minister Alexis Tsipras is likely to have to move considerably further from where he is now.
Tsipras says he has a strong democratic mandate to pursue a new deal. The euro zone says Greece owes them a fortune. Both are right. Something must give.
The European Central Bank has kept the pressure on and could possibly pull the plug on emergency support for Greek banks, without which they will collapse, if there is no progress toward a deal.
Last week, the ECB made available a further 5 billion euros of Emergency Lending Assistance (ELA). Banking sources told Reuters it did so because deposit outflows have picked up and also to ensure sufficient liquidity while the standoff persists.
That money will only last until Wednesday when the ECB Governing Council meets to review the situation.
It could stop the lifeline for Greek banks if Greece was clearly not in a bailout program and/or if it judged its banks to be insolvent. That would push Athens a big step closer to the edge.
"A continuation of the deadlock on Monday will immediately shift focus to Wednesday’s bi-weekly ECB review of the ELA limits of Greek banks," said Deutsche Bank strategist George Saravelos.
No comments:
Post a Comment