April 27, 2015

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It's Chefsache now

Alexis Tsipras called Angela Merkel and Jeroen Dijsselbloem on Sunday night. We have different accounts of what was said. Bild Zeitung, which had the story last night, quotes an EU official saying that Greece is running out of money in the next two weeks before May 11. A Greek government official said both sides agreed to maintain contact during talks between Athens and its lenders to reach a mutually beneficial deal, according to Kathimerini. The article quotes Greek government sources saying that Tsipras wants to take on negotiations himself now. Yannis Dragasakis told the press that the government might be forced “to take measures that until now we have tried to avoid” if the political uncertainty continued, according to Greek Reporter. He blames past settlements for this, intensified by the ECB's restrictions. The Brussels group will hold talks today.

Tsipras' phone call comes after the stormy informal Ecofin in Riga on Friday. Varoufakis called for a partial release of funds in return for a narrowed down reform list, according to this article but got the cold shoulder from his colleagues. Finance ministers obviously did not enjoy being lectured by Varoufakis, and are unlikely to share his view that there had been "convergence". The FT writes that the current stand-off was more about the procedure than content. Varoufakis continues to refuse engaging with mid-level negotiators in Athens and has insisted a political agreement has to be reached at high levels instead. The WSJ reports that some eurozone finance ministers on Saturday acknowledged for the first time that they are considering plans on what to do if no deal on Greece’s future financing can be reached by the end of June.

The blame game that followed the eurogroup meeting was unprecedented: Reuters reported that Varoufakis was isolated and finance ministers insulted him as a time-waster, a gambler and an amateur, according to Bloomberg. Varoufakis rebuked saying that reports on insults were wrong, that he preferred to have dinner with friends and tweeted one of Franklin Roosevelt’s more memorable lines: “FDR, 1936: ‘they are unanimous in their hate for me; and I welcome their hatred.' It certainly confirms reports that Varoufakis got hammered in the meeting. The question for us is why this happened. Eurozone finance ministers clearly did want to call an extraordinary summit, an idea also rejected by Merkel, according to Bild. Do they hope to split the Greek government, and isolate Varoufakis? Do they seek Varoufakis' resignation as a scapegoat in exchange for a more accommodating position on the substantive issues? 

Bild reckoned that Varoufakis and Tsipras are simply playing a "good cop, bad cop" game with the creditors. Though the FT quotes a Greek official saying that Varoufakis is considered a drag on the Syriza government but that Varoufakis would be fired only after an interim deal. Greek Reporter says several Syriza ministers now openly contemplate snap elections or a referendum.  Recent polls show that Syriza has remained in the lead. According to a poll for “To Vima,” Syriza leads with 36.9%, followed by New Democracy with 21.7%. A different poll for “Proto Thema” showed Syriza in the lead with 35.9%, while New Democracy was second with 21.8%.  The Kapa Research poll for To Vima shows that 71.9% want an agreement with Greece’s creditors, against 23.2% who said the government should refuse any compromise, according to Kathimerini. The Alcos poll finds 50% to prefer a deal over 36% who prefer a rupture, according to Macropolis. There is also a clear sense that the honeymoon for the government is over. Yannis Koutsomitis (@YanniKouts) tweets that Greeks are worried about government policies (52.9% up from 34% in February) and more angered (32.6% compared with 2.7%). 

What about the funding situation? The government is trying to find €1bn to pay pensions and subsidies this week, and will need additional cash to make payments of €880m due to the IMF by mid-May. The FT reports that mayors across the country have so far refused to comply with a decree approved by parliament on Friday forcing local authorities to deposit their cash reserves immediately with the central bank, on grounds that if Greece defaults the funds will be permanently lost. What about the banks? Macropolis looked at how a larger haircut would affect the liquidity position of Greek banks. They calculated that the nominal value of the currently available ELA collateral is about €80bn. Greek banks can raise another €20bn from loans and more than €30bn from pillar II bonds on the haircuts currently applied (about 40%), €50bn in total.  The article argues that if the haircut is increased to an average of 60%, the banks could still raise another €30bn under the ELA. 

There is also a counter-intuitive factoid we noted in Corriere della Sera this morning. The paper's coverage of the Riga Ecofin was essentially the same of that of other newspapers, but it contained a reference to a report by Credit Suisse, according to which the Greek fiscal position was better than expected. In the first two months of this year, tax revenues collapsed by a billion. But with the law to tax areas over 100 pays, payments began to flow back in March, during which the shortfall in January and February was recovered. The projected revenues for April would bring Greece in line with the troika's original plans.

Our other stories

Today we also have a critique of plans for French government cuts; political positioning in the run up to the Portuguese elections; a result that could bring peace in Cyprus; Spain’s debate on basic income; and on the legal complexities of Grexit.

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