Why Greece's spillover across euro area will probably be contained this time

[specuvestor]

Economics is becoming so complex in literature and jargons that sometimes people don't even realise the solution to what the statistics are saying because the water becomes muddied with numbers and letters.

That's why people can suggest increasing or not lowering food prices so that inflation will not decline. Or pundits in Australia just not so long ago suggest to support the property market because it generates the growth and jobs. Their obsession with data warped their thought process, rather than master what the data is saying in real world terms, not statistical terms.

In this case it is essentially asking Germany to reduce her competitiveness and match the lower denominator. Can you imagine what happens to the education system if it runs by such philosophy? Make no mistake: the surplus is an issue and the architects of EU know that it will create a problem in the long run hence the reason why they have this Macroeconomic Imbalance clause. But the solution is to help the rest match up, not regress.

And there again lies the nationality problem. It is not going to be easy to ask Germany to help Greeks be more competitive. I don't think Californians would have problem helping Michigans or Shandong people helping Sichuan. The assimilation of EU is much tougher and labourious than most realise except the architects, but it is not unworkable as many thought. It takes a lot of time and effort, and Germany had shown it can be done with East Germany. But then again they are all Germans.

A good article IMO, that shows that countries like Greece are not solely to blame for their problems. Like the article says, if Germany continues to run a big surplus year after year, the Eurozone will continue to move from crisis to crisis.

http://www.telegraph.co.uk/finance/comme...reece.html

...Chronic surpluses are a way of stealing demand from elsewhere. They export unemployment to other countries. This matters in an era of "secular stagnation" and excess global savings. Societies are entitled to retaliate once this gets out of hand...

[grubb]

Economics is becoming so complex in literature and jargons that sometimes people don't even realise the solution to what the statistics are saying because the water becomes muddied with numbers and letters.

That's why people can suggest increasing or not lowering food prices so that inflation will not decline. Or pundits in Australia just not so long ago suggest to support the property market because it generates the growth and jobs.

In this case it is essentially asking Germany to reduce her competitiveness and match the lower denominator. Can you imagine what happens to the education system if it runs by such philosophy? Make no mistake: the surplus is an issue and the architects of EU know that it will create a problem in the long run hence the reason why they have this Macroeconomic Imbalance clause. But the solution is to help the rest match up, not regress.

And there again lies the nationality problem. It is not going to be easy to ask Germany to help Greeks be more competitive. I don't think Californians would have problem helping Michigans or Shandong people helping Sichuan. The assimilation of EU is much tougher and labourious than most realise except the architects, but it is not unworkable as many thought. It takes a lot of time and effort, and Germany had shown it can be done with East Germany. But then again they are all Germans.

[/quote]

Hi Specuvestor,

In this case I think the matter is not as complicated as it seems. It is really about the balance of payments accounting identity. Imbalances have to eventually rebalance, and history has shown that no country can run surpluses or deficits forever, let alone the size that Germany is having. US is an example of how deficits came home to roost (which just ran another massive deficit).

Should the surplus countries like Germany and China purposely lower their competitiveness? I think so. When the deficit country cannot take it anymore, the surplus country will have to pay the price in one way or another, i.e. debt default on German creditors and overinvestment/asset bubbles in China.

It is not really about the education system or regressing IMO. If the Eurozone is to remain, and if countries like Spain, Greece, France are to escape from their low growth problem, then the Eurozone must rebalance. Germany must export demand instead of importing demand. This can be done like the article says by increasing wages, reducing taxes, increasing investment etc. That's why articles about how Germany is the locomotive pulling the entire Euro GDP along sounds silly to me, because it does not explain how Germany is really benefiting at the expense of its neighbours.

I absolutely agree with you that it is not easy for Germany to help the others. So it seems that the Eurozone will continue to muddle along for some time. Otherwise, I think the only countries that have somewhat addressed their imbalances post GFC is China and the US.

Anyway for all I think, in the end who really cares? Stocks have still shot up in the past 5 years.

[specuvestor]

Hi Grubb

Actually history has shown that you can run surpluses and deficits for quite extended periods, practically forever for all purposes. Think Japan and US. But that is linked to fiat monetary and FX policies including reserves. For example Australia can have a pretty prolong period of current account deficit as their A$ is a reserve currency albeit small, and they can effectively "mint foreign reserve" with mining. I am pretty sure china's foreign reserve will decline as RMB internationalises, as it has already done, which pundits are saying it is a deterioration sign. It is not.

It is complicated in Europe because the regional disparities are high unlike in US but similar to China. But they face the additional problem of not able to smoothen out the pockets with migration though theoretically labour mobility is there, due partly to nationality, unlike China. In any case fiscal prudence and balance cannot be bad in the longer term, the question is where do you put your reserves? In a flexible exchange rate, the competitiveness will be adjusted by the appreciating currency. The issue now is of course Germany is taking advantage of the weak Euro and the Eurozone is pegged to same currency ie they are competing with Germany at same league. Hence it is actually important that Eurozone as a whole can export itself out with a weakening currency, rather than just looking at Germany CA surplus. That was what happened in AFC. The right figures to analyse is whether Germany's CA surplus is from trade within Eurozone or outside Eurozone?

Stocks have been up past 5 years from monetary easing. If I am right as I posted before that US will hike not because of inflation, but becuase of reverting to positive real rates, perceptions will change.

[greengiraffe]

http://www.ft.com/cms/s/0/2f601ae4-060c-...abdc0.html

May 29, 2015 3:46 pm
US warns of Greek exit ‘accident’ as bank outflows soar
By Claire Jones and Stefan Wagstyl in Dresden and Kerin Hope in Athens


US Treasury secretary Jack Lew©Bloomberg
US Treasury secretary Jack Lew
Jack Lew, the US Treasury secretary, has urged Athens and its international creditors to agree a bailout deal as soon as possible, saying delays are heightening the threat of “an accident” that could force Greece out of the eurozone.
His plea for all sides to show flexibility in the talks came as negotiators struggled to make progress towards an agreement that would unlock desperately needed bailout money for Greece.
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It also emerged on Friday that deposit outflows from Greek banks accelerated this week, with about €800m withdrawn on Wednesday and Thursday alone, according to two senior Athens bankers.
Mr Lew’s intervention comes as Greece seeks the release of €7.2bn of aid that has been frozen since last year. Without it, Athens is likely to run out of money and default on its debts — an outcome that would push it perilously close to crashing out of the eurozone.
Mr Lew, in Dresden for a Group of Seven summit of finance ministers and central bank governors, said the long negotiations should be completed “sooner rather than later”.
“If these deadlines were taken seriously it would be a good thing for all parties,” he said.
The US Treasury chief added that delaying an agreement raised the threat of “an accident”. He said: “If you want to avoid that, the sooner you have a serious conversation, then the better.”
His remarks highlight Washington’s growing frustration at the failure of the eurozone and Athens to agree the terms of a reform package, and its concern that a Greek default could send shockwaves through the global economy.
Greece’s bailout monitors — the International Monetary Fund, the European Commission and the European Central Bank — insist that Athens must present a comprehensive reform programme if the €7.2bn is to be disbursed.

More video
Mr Lew made clear that the onus was on Athens to show some flexibility. The radical Syriza-led government needed to “make some very tough decisions” and to “show with clarity the steps they’re prepared to take”, he said.
But he acknowledged that the creditors also needed to be more pliant. “All parties need to move,” he said.
Eurozone officials say Athens now has to agree a deal by the end of next week in order to ensure that eurozone parliaments have enough time to ratify any bailout changes by the end of June.
The IMF confirmed this week that Athens would be permitted to delay all its June repayments until the end of the month, removing the threat that Greece could default as soon as next Friday, when €300m falls due.
“There is great uncertainty at a time when the world needs greater stability and certainty,” said Mr Lew.
World blog

Lagarde, the blame game and Greece
President of the International Monetary Fund (IMF) Christine Lagarde and the President of the Deutsche Bundesbank Jens Weidmann converse before a group photo in the Royal Palace in Dresden, Germany, 28 May 2015. Finance ministers and central bank governors from the seven leading western industrial states (G7) are meeting in the capital of Saxony from 27 to 29 May 2015. Photo: ARNO BURGI/
Christine Lagarde made headlines after saying in a German press interview that Grexit was “a potential” - but was she passing the buck?
Michel Sapin, the French finance minister, said in Dresden that all parties remained committed to the talks and keeping Greece into the eurozone. “There is no Grexit scenario,” he said.
But Wolfgang Schäuble, the German finance minister, was more cautious, saying: “The positive news from Athens is still not fully reflected in the state of negotiations of the government in Athens with the creditors.”
His comments reflected his irritation about recent statements from Greece forecasting a successful early end to the talks.
A steady decline in deposits since last October has forced Greek banks to seek emergency liquidity assistance (ELA) from the country’s central bank, which is approved on a weekly basis by the ECB.
According to ECB data published on Friday, total bank deposits fell from €145bn in March to €139.4bn in April, the lowest level in more than a decade. The €5.6bn decline marked an acceleration from the previous month when €1.9bn left the banks.
Business and household deposits shrank by 3.5 per cent to €133.6bn, falling for the seventh straight month, according to the ECB.
“The pace [of withdrawals] picked up in the last couple of days after several weeks of calmer conditions,” said one banker.”There’s been a lot of political noise which had an impact on depositors’ confidence.”
Greek companies continue to set up accounts with banks elsewhere in the eurozone, while scores of state entities have moved funds to the central bank’s common fund, which is used to pay wages and salaries, said another banker.
However, the Greek central bank held off requesting a further injection of ELA this week on grounds that outflows had stabilised in May. A central bank official said the liquidity buffer had increased since last week to more than €3bn.

[greengiraffe]

http://www.afr.com/markets/equity-market...531-ghcplj

OPINION Jun 1 2015 at 12:00 AM Updated Jun 1 2015 at 4:50 AM SAVE ARTICLE PRINT REPRINTS & PERMISSIONS Grexit entering end game as Greece debt talks go down to the wire

Greek Finance Minister Yanis Varoufakis (left) and Prime Minister Alexis Tsipras. Unless a quick breakthrough in negotiations can be achieved, a Greek default is imminent.
Greek Finance Minister Yanis Varoufakis (left) and Prime Minister Alexis Tsipras. Unless a quick breakthrough in negotiations can be achieved, a Greek default is imminent. Reuters
by Karen Maley
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.

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.

Last week was no exception, with investors – who now react feverishly to even minor developments in the drama that has pitted the radical leftist Greek government of Prime Minister Alexis Tsipras against the country's creditors (the International Monetary Fund, the European Central Bank and the European Union) – enduring a roller-coaster ride.

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.

But these hopes were tempered by the much more prudent German finance minister, Wolfgang Schäuble, who hosed down expectations of an imminent agreement.

The following day, investors were plunged into despair after IMF boss Christine Lagarde told the Frankfurter Allgemeine Zeitung that the exit of Greece from the eurozone was "a possibility", which would "probably not" spell an end for the euro.

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.

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. 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 spreading gloom about a Grexit caused the Germany's DAX to fall 3.8 per last week, while France's CAC 40 shed 2.6 per cent. In contrast, the US S&P 500 index fell by a more modest 0.9 per cent in the week.

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. Greece's creditors are insisting that the country commit to reforming the pension system, the labour market and the sales tax regime in exchange for the funds, but Tsipras is reluctant to agree for fear of sparking a voter backlash.

As a result, agreement remains elusive. 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.

There are also major disagreements on the size of the primary surplus (which excludes debt servicing) that Athens should be aiming to achieve. Taking into consideration Greece's parlous economic position, Brussels is content with a primary surplus amounting to 1 per cent of GDP in 2015, rising to 2 per cent in 2016 and 3 per cent in 2017. But again the IMF is pressing for more ambitious targets.

From Athens to Paris, and from Berlin to Washington, unless a quick breakthrough in negotiations can be achieved, a Greek default is imminent.

The overwhelming hope is that the two sides can reach agreement before Friday, when Athens is due to repay €300 million to the IMF. Athens claims to have the money to meet this deadline but there are worries that it will not be able to meet three further payments to the IMF later this month totaling about €1.25 billion.

An agreement between Athens and Brussels would also clear the way for the ECB to again accept Greek government bonds as collateral for loans, giving the country access to much-needed liquidity. 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.

But it will be a tense week, starting on Monday when French President François Hollande is due to meet German Chancellor Angela Merkel and the head of the European Commission, Jean-Claude Juncker, in Berlin.

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.

[greengiraffe]

Greece to get take-it-or-leave-it bailout offer
MARCUS WALKER THE WALL STREET JOURNAL JUNE 03, 2015 7:20AM

Greek Prime Minister Alexis Tsipras faces a tough job to sell any deal to his party. Source: AFP
Greece’s international creditors are poised to present the country with the outlines of a bailout deal that amounts to a take-it-or-leave-it offer, in a move aimed at breaking a months-long stalemate but which risks a political backlash and even a government collapse in Athens.

The move marks a sharp shift in tactics by Germany, the IMF and other Greek creditors, who have lost patience with what they see as months of fruitless dialogue with the Athens government.

Lenders drafted the proposed deal after key leaders, including German Chancellor Angela Merkel, met in Berlin late on Monday to overcome their own divisions on how to keep Greece from bankruptcy and an exit from the euro.

The creditors’ proposal, which European officials say Greece will now be asked to accept with at most minor changes, would unlock badly needed emergency financing to avoid a Greek debt default in coming weeks, in return for Greece’s adherence to a set of tough economic-policy overhauls.

Those policy conditions, including fiscal austerity, privatisations, and overhauls of pensions and labour law, could prove extremely challenging for the government of Greek Prime Minister Alexis Tsipras to swallow.

The premier’s left-wing Syriza party won election in January on a promise to halt and reverse austerity and market-oriented overhauls. Some Syriza politicians are already calling for new elections rather than what they see as surrender to creditors’ terms.

European policy makers are trying hard to avoid the appearance of an ultimatum to Greece, knowing that this would make an already-difficult deal even harder for Athens to swallow. Most European officials were tight-lipped about the lenders’ latest initiative. But some officials admitted that the move amounts to a “take it or leave it” offer to Greece.

Led by the German chancellery, creditors have been moving toward this tactic over the past two weeks, after growing frustrated with the lack of progress in negotiations with Greek officials aimed at a compromise.

Lenders now hope that Mr Tsipras can be pressed to accept the creditors’ outline of a deal by the end of this week — allowing lower-level officials to complete the details next week, European officials say. That would allow the European Central Bank to make more liquidity available to Greek banks, enabling them to buy more short-term debt from the Greek government and relieving some of the immediate financial pressure.

Greece is facing a €300 million ($US327 million) payment to the IMF on Friday. The country is believed to have enough cash left to repay that, but European officials say Athens probably can’t meet further IMF repayments in June totalling about €1.25 billion unless it gets fresh financing in some form. Without a large subsequent cash injection from lenders, Greece faces a debt default in late July that could ultimately push the country out of the euro.

Mr Tsipras faces particularly tough days and weeks ahead since Monday night’s summit in Berlin resulted in a consensus among creditors that leaves Greece will little scope to fulfil Syriza’s election promises.

In Berlin, the IMF and the eurozone bridged their differences over Greece by agreeing that Athens must be made to enact comprehensive economic overhauls, as the IMF wanted — but that there will be no explicit commitment, for now, to forgive some of Greece’s debt. Germany and other eurozone governments have strongly resisted IMF pressure to offer Greece debt relief that would impose losses on other European taxpayers.

The combination of tough economic measures and a delay to any potential debt relief could test the unity of Mr Tsipras’s governing coalition. With a majority of only 12 in Greece’s 300-seat parliament, even a small rebellion by some of Syriza’s hard-line left factions could deprive Mr Tsipras of crucial support, forcing him to rely on opposition votes and potentially triggering elections or a referendum.

“In terms of packaging this deal, Tsipras doesn’t have any easy way to sell it to his party,” said Wolf Piccoli, director of research at political risk consultancy Teneo Intelligence. “If Tsipras feels he might lose his parliamentary majority, he might pass the vote to the public.”

The proposed deal would complete Greece’s current bailout program with its eurozone partners, a process that some officials say could extend over this summer. By the northern autumn, officials say, Greece will need a new bailout package that keeps the country afloat until it is able to access international bond markets again — which many economists say could take years.

Ms Merkel and other eurozone leaders are eager to avoid a default by Greece on its debt that could lead to the country tumbling out of the euro. But Ms Merkel needs Mr Tsipras to accept tough fiscal discipline and broader economic overhauls if she is to sell further aid loans for Greece to a German parliament and public that is increasingly sceptical about Greece’s willingness to make its economy as lean and competitive as euro membership requires.

Ever since Greece’s international bailout began in 2010, Ms Merkel has made the IMF the arbiter of whether Greece is enacting enough austerity and overhauls to deserve aid loans. The IMF remains Germany’s ally on Greek overhauls, in the face of reluctance elsewhere in Europe — including at the Brussels-based European Commission — to impose drastic and politically difficult policy overhauls on Athens. But the Washington-based fund has clashed with Berlin over Greek’s huge debt.

The IMF insists Greece can be rendered solvent only through either far-reaching economic overhauls, or through debt forgiveness. Germany has so far staunchly rejected writing off its aid loans to Greece.

Late on Monday, the creditors bridged their differences by agreeing that Greece must enact comprehensive overhauls to earn fresh financing, while the IMF softened its insistence that Europe offer explicit commitments on debt relief.

Greece’s high debt remains a contentious issue in the background between the IMF and Europe, but isn’t holding up the creditors’ proposal to Greece. IMF head Christine Lagarde warned in Berlin that debt restructuring will become necessary if Greece doesn’t enact thorough economic overhauls that improve its budget balance and lift its growth trajectory, people familiar with the meeting said.

In a show of defiance, Mr Tsipras told reporters that Athens has submitted its own proposed terms for a deal to European institutions and the IMF. Mr Tsipras said he was optimistic that Greece’s proposal would be accepted. But European officials said that Greece’s own proposals remain insufficiently comprehensive or specific — a problem that has frustrated creditors for weeks, and that led to this week’s take-it-or-leave-it initiative.

Mr Tsipras said he believes European leaders will be “realistic” and accept the Greek counterproposal. “The decision now lies with the political leadership in Europe (to reach an agreement),” Mr Tsipras said. “We don’t expect any other plan to be submitted; Greece is the one submitting the plan,” the Greek premier said.

Greece’s government has nearly run out of money to continue servicing its foreign debts while also paying its bills at home. Rising outflows of deposits from Greek banks are putting added pressure on Mr Tsipras to sign a deal.

The ECB last night increased the amount of liquidity that Greek banks can borrow under an emergency liquidity program to €80.7 billion ($US89 billion) from €80.2 billion previously, according to a Greek bank official. The increase preserves the financial buffer that Greek banks have to cope with steady deposit outflows, which reflect months of uncertainty over Greece’s bailout.

Syriza’s parliamentary spokesman Nikos Filis said on local television that Greece won’t accept an ultimatum from creditors, and that Greece’s government cannot sign an agreement that is incompatible with the party’s antiausterity program. “If we are talking about an ultimatum ... which isn’t within the framework of the popular mandate, it is obvious that the government cannot co-sign and accept it,” Mr Filis said.

Mr Filis said that if 12 or more Syriza politicians vote against the proposed deal, wiping out the ruling coalition’s majority, then Greece should hold new elections.

Wall Street Journal

[greengiraffe]

Greece’s creditors make concessions as showdown nears
VIKTORIA DENDRINOU THE WALL STREET JOURNAL JUNE 04, 2015 11:20AM

Greek PM Alexis Tsipras, left, with European Commission President Jean-Claude Juncker before their talks in Brussels. Source: AFP

Greek Prime Minister Alexis Tsipras said the only realistic proposal for an agreement between Greece and its international creditors is the plan on the table from Athens, but believes an agreement is in sight.

“The discussions are going to continue in the coming days,” Mr Tsipras said after crucial bailout talks with creditors in Brussels, adding that there is willingness for a realistic proposal to be found.

He said the European Commission had shown a “constructive intention to reach common ground”.

“I believe that, in any case, agreement is in sight but we need to conclude the discussions with a realistic point of view,” Mr Tsipras said.

Mr Tsipras’s comments came after a four-hour meeting with European Commission President Jean-Claude Juncker in which they tried to move closer to a deal in order to unlock aid before the government is expected to run out of cash later this month.

Eurogroup chief Jeroen Dijsselbloem, who also attended the four-hour talks over dinner in Brussels, told reporters it was a “very good meeting”.

The European Commission added: “It was a good, constructive meeting. Progress was made in understanding each other’s positions on the basis of various proposals. It was agreed that they will meet again.”

The meeting came after Greece’s international creditors agreed yesterday on the outlines of a bailout deal to present to Athens, a move aimed at breaking a months-long stalemate in negotiations over economic overhauls and budget cuts that Greece needs to carry out in order to receive €7.2 billion ($US8.1bn) euros in additional bailout funds.

The new proposal, which some European officials described as a “take it or leave it” offer, was drafted after a meeting of key leaders, including German Chancellor Angela Merkel, in Berlin early on Tuesday (AEST).

However, Mr Tsipras said: “There is no ‘take it or leave it’ deal.”

Athens sent its own proposal on Tuesday — outlined in a 47-page document — which officials have said remains insufficiently comprehensive or specific.

Greece, fast running out of cash, likely needs some sort of help by mid-June to repay a series of International Monetary Fund loans falling due.

The country is believed to have enough cash to repay a €300 million payment due to the IMF on Friday night.

Asked today whether he would be able to make the next repayment to the International Monetary Fund, Mr Tsipras said: “Don’t worry about it.”

But European officials say Athens probably can’t meet further IMF repayments in June totalling about €1.25 billion unless it gets fresh financing in some form.

The bailout deal presented to Athens was drafted after key leaders met in Berlin to overcome their own divisions on how to keep Greece from bankruptcy.

“We are a few days, or I could even say a few hours, away from a resolution,” France’s president, Francois Hollande, said earlier at a conference in Paris.

The proposal calls for primary surpluses — the excess of revenues over expenditures before interest payments are made — of 1 per cent in 2015, 2 per cent in 2016, 3 per cent in 2017 and 3.5 per cent in 2018, according to an official with knowledge of the proposal.

These rates are lower than the targets of 3 per cent in 2015 and 4.5 per cent from 2016 onward that were foreseen in Greece’s existing bailout program, which has been extended until the end of June. Still, they are higher than what Athens was hoping to achieve and would force the government to make more spending cuts amid a shrinking economy, risking a major backlash from its left wing party and Greek voters.

One key target of additional cuts under the proposal is Greece’s pension system, which Mr Tsipras and his allies had promised to shield from further measures. Under the plan, Greece would have to reduce pension spending as of July, delivering savings of 0.25 per cent to 0.5 per cent of gross domestic product this year and 1 per cent of GDP next year.

Greece’s creditors appear to have made some concessions on planned changes to the country’s labour market. The proposal foresees no further reduction to the number of public-sector workers. Instead of immediately pushing for new laws to make it easier to fire workers, the plan calls for a consultation that would revisit the framework for collective bargaining and collective dismissals. In return, Greece has to promise not to reverse previous measures to open up its labour market.

The lenders’ proposal also calls for higher rates on value-added taxes than the ones put forward by Athens in negotiations. Greece’s VAT system, which currently has many different rates, would be simplified to just two — 11 per cent and 23 per cent — which would bring in higher revenues. Greece has been pushing for a system of three rates, which European officials say falls short of the extra €1.8 billion ($US2 billion), or about 1 per cent of GDP, that creditors have been asking for.

European officials cautioned that today’s meeting wouldn’t be the final word in the negotiations. “This is a first discussion, not a concluding one,” said Mr Juncker’s spokesman, Margaritis Schinas.

Officials said Greece’s proposals remained insufficiently comprehensive or specific.

“The Greek government and the institutions now have sets of proposals that they are confronting,” European Central Bank President Mario Draghi said at a press conference.

The policy conditions in the creditors’ proposal could prove extremely challenging for Mr Tsipras to accept without sparking a rebellion within his ruling coalition. Members of his Syriza party are already organising a meeting for tomorrow to discuss the deal.

Wall Street Journal

[greengiraffe]

Greece buys time by delaying payments to IMF
AP JUNE 05, 2015 7:00AM

A handshake, but Greek PM Alexis Tsipras’s talks with European Commission President Jean-Claude Juncker failed to break the deadlock. Source: AP
Greece has pulled the emergency cord in its fraught bailout talks, opting to bundle together its four payments due to the International Monetary Fund this month into one on June 30 — a course last followed three decades ago by Zambia.

The delay is allowed under IMF rules, but provides a stark sign of how Greece is struggling to make ends meet without the vital rescue loans that have been withheld since last summer, as Athens and its creditors fail to agree on economic reforms.

The move follows the failure of radical left Prime Minister Alexis Tsipras to break the stalemate with creditors at a late-night meeting with European Commission head Jean Claude Juncker and the top official representing Greece’s peers in the eurozone. The talks will resume “within coming days,” officials said.

On his return to Athens, Mr Tsipras told government officials that “extreme proposals will not be accepted by the Greek government. Everyone must understand that the Greek people have suffered greatly over the last five years and some people must stop playing games at their expense.”

Without a deal, Greece will not get the €7.2 billion euros ($A10.5 billion) remaining from its €240 billion bailout fund, which it’s been relying on for five years. Without the money, it will struggle to pay upcoming debts and the country could soon go bankrupt — a possible preamble to a forced exit from the euro and a return to a financial stone age with a devalued version of its old national currency.

“The Greek authorities have informed the Fund today that they plan to bundle the country’s four June payments into one, which is now due on June 30,” IMF spokesman Gerry Rice said. “The decision was intended to address the administrative difficulty of making multiple payments in a short period.”

Under an IMF rule from the 1970s, countries can ask to bundle together multiple payments if they fall within a single calendar month. Not since Zambia in the mid-1980s has a country made the request, according to the IMF.

Still, the request buys some time for the Greek government, which has already scraped the barrel of its finances by forcing local authorities, hospitals and universities to lend it their cash reserves. Its first IMF payment of a little more than 300 million euros ($A440 million) was due on Friday, part of a total €1.6 billion ($A2.3bn) due to the Fund this month.

Greece has bigger payments due to the European Central Bank this year, and can’t meet them without the rescue money. Inability to repay creditors or pay pensions and public sector salaries could cause havoc involving capital controls and an unprecedented departure from the 19-country eurozone.

For now, Thursday’s IMF postponement does not appear to impact Greek banks’ ability to draw on vital emergency credit from the Greek central bank, as permitted by the European Central Bank. An ECB spokesman declined to comment on the move.

At an emergency meeting with ministers overnight (AEST), Mr Tsipras called a parliamentary debate for tonight (AEST) on the course of the bailout negotiations.

Syriza governs in a coalition with the right-wing Independent Greeks and holds a majority of 12 seats in the 300-member Greek parliament. Growing dissent in his party has fuelled talk of another snap election in the heart of the northern summer, which Syriza would probably win, according to opinion polls. However, the uncertainty would likely heap further damage on the economy, which is back in recession after a brief bout of growth.

The finance ministry said reforms and tax measures advocated by the three institutions providing Greece’s rescue loans — the IMF, ECB and Commission — would “significantly deepen” poverty and unemployment.

“After four months of negotiations, the institutions have tabled proposals whose implementation, in the opinion of the finance ministry, lack the ability to solve the riddle of the financial crisis that the policies of the past five years have aggravated,” a ministry statement said.

“The agreement that Greece — and Europe — needs demands an immediate shift by the institutions to more realistic proposals that will offer a prospect of recovery and social sensitivity.”

The deadlock in Brussels disappointed investors across Europe, with the main Athens stock market unsurprisingly bearing the brunt of the selling, closing down 1.3 per cent.

Mr Tsipras noted progress had been made in the Brussels talks on the scale of the budget surplus that Athens has to meet — effectively the lower the surplus the country has to post the less draconian the budget measures have to be. But he said lingering disagreements over other key issues, such as proposed sales tax hikes and pension cuts, mean that an agreement is not ready.

“If the government accepted this proposal, it would have been a disorderly retreat and an agreement to our submission,” Social Security Minister Dimitris Stratoulis told Parliament.

“The entire package of proposals that were submitted yesterday are rejectable by our government,” he said, describing them as an attempt by bailout lenders to impose “neo-colonialism.”

The government was elected in January on a promise to end the hated austerity that creditors have demanded in return for bailout cash over the past five years.

A series of tax hikes and spending cuts have succeeded in taming Greece’s budget deficits but the cost of the prescribed medicine has been steep: average incomes have fallen by at least a third, unemployment has shot up to 28 per cent with a million jobs lost, and the economy has shrunk by more than a quarter.

AP

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Tsipras turns to Putin and accuses West of sabotage
ANTHEE CARASSAVA AND BRUNO WATERFIELD THE TIMES JUNE 06, 2015 9:14AM

Greek Prime Minister Alexis Tsipras gestures during his address to the Greek Parliament in Athens on Friday. Source: AFP

A defiant prime minister of Greece turned to Russia on Friday as he accused the West of forcing “absurd” austerity measures on his bankrupt country.

Alexis Tsipras said that the eurozone and the International Monetary Fund were sabotaging a deal that would give Greece a new injection of loans, and was instead pushing Athens to the brink of default and out of the euro.

The leader of Syriza, Greece’s left-wing ruling party, accused the European Union and IMF of tearing up “common ground” with five-pages of austerity demands presented to him in Brussels on Wednesday.

“The creditors’ proposals are unrealistic and a step back in negotiations,” he told parliament. “The Greek government cannot agree to irrational proposals. Greek people should be proud because the government is not going to give into absurd proposals.”

Hours earlier, Mr Tsipras talked by telephone with President Putin and agreed to meet him in Saint Petersburg on June 18.

The news fuelled fears in EU capitals and Washington that Greece could break ranks over economic sanctions on Russia imposed over the Ukraine crisis, in order to secure Russian funds.

Greece is hoping for €5 billion in advance payments from Russia by agreeing to become a central hub for a controversial new gas pipeline from Russia to Europe, a move that has been criticised by the United States and other European countries.

On Thursday Amos Hochstein, the US State Department’s special envoy for energy, urged Greece to pull out because the pipeline would increase Europe’s reliance on Russian gas when the EU was trying to break the dependency in the wake of the Ukraine crisis. Panagiotis Lafazanis, the Greek energy minister and the leader of Syriza’s far-left faction, condemned it as “intolerable interference”, opening a new front in Greece’s confrontation with the West. “Greece will not be blackmailed and does not consider its energy choices as part of any problem,” he said.

Yanis Varoufakis, the Greek finance minister, said the eurozone and IMF plan was “atrocious”. “The deal proposed by the creditors is the kind l you propose if you don’t want a deal,” he told Newsnight on BBC television.

The cost of Greek borrowing spiked yesterday as markets reacted to Thursday’s decision to delay and combine three payments to the IMF totalling €1.6 billion until the end of the month.

Officials in Washington, Brussels and Frankfurt were shocked and dismayed at the decision not to pay the IMF €301 million yesterday (Friday), despite the Greek treasury having the money.

Pressure on Mr Tsipras is growing from Syriza’s powerful far-left to call an election over the creditors’ demand for pension cuts and increases in VAT.

Panagiotis Kourouplis, the health minister, said that Greece would not be forced to sign up to austerity measures rejected by voters in the elections that brought Syriza to power in January.

“The government will not go back on the promises we made to the Greek people. Let the Europeans assume the responsibility,” he said.

Dimitris Stratoulis, the social security minister, called for fresh elections if the eurozone and IMF did not drop the demands, a vote that would become a referendum on the euro and Syriza’s opposition to austerity.

“The lenders want to impose hard measures. If they do not back down from this package of blackmail the government will have to seek alternative solutions, elections,” he said.

Thursday’s decision by Greece not to pay the IMF until the end of June has created a huge overhang in debt payments, totalling €5.4 billion, that must be paid to international lenders next month.

In the same period Greece must also roll over €7.2 billion in treasury bills, at a time when the cost of Greek borrowing is soaring as the financial markets price in the political stalemate and the growing risk of the country defaulting and causing a new eurozone crisis.

The Greek government must also find €7.8 billion to pay pensions and public sector wages over the next seven weeks. The debt repayment burden and state obligations dwarf the €7.2 billion in EU-IMF loans that is at the centre of the negotiations, which must be resolved by June 30.

Alekos Flabouraris, the labour minister, called on the eurozone and IMF not to push Greece into a corner.

“There is hope that creditors will come to their senses before they realise the dangerous mistake of pushing Greece over the cliff,” he said.

The Times

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