April 20, 2015


So now we know what Tsipras and Putin discussed or do we?

Amid a lot of noise there has been some important news over the weekend - an looming energy deal between Russia and Greece, as part of which Greece may receive an immediate cash injection of €3-5bn. It was reported, later denied.

Spiegel Online was the original source of this article on Saturday morning. Here is the more detailed follow-up. The story is that Greece and Russia are due tomorrow (Tuesday) to sign the Turkish Stream pipeline project which should pump Russian gas through the Black Sea via Greece to Turkey from 2019 onwards. The key is that Greece would get a down-payment on the future profit stream of some €3-5bn immediately, which should give the country some room of manoeuvre in the debt negotiations. The money will not need to be repaid until 2019, when the pipeline is scheduled to go on stream.

This article appears well sourced - the journalist quotes a high-ranking Syriza official who is intimately involved in the deal. This does not necessary mean that Greece will actually get the money next week - but the story is instructive in the sense that Greece may have more short-term options available than the general "about to default" chatter in Washington over the weekend and in various newspaper articles suggests. (See also the analysis by Zsolt Darvis below, who warns against premature forecasts of immediate default).

Later on Saturday, Vladimir Putin's spokesman Dmitry Peskov denied the story, saying there was no agreement according to Reuters. But note what Peskov actually said.

"Naturally the question of energy cooperation was raised. Naturally ... it was agreed that at the expert level there would be a working-out of all issues connected with cooperation in the energy sphere, but Russia did not promise financial help because no one asked for it."

This does not strike as a flat-out denial of the actual energy story. This is not about financial assistance, but about a pre-payment of profits.

If true, this opens up some questions: what Greece would offer in return for such a credit? It is inconceivable that there is no implicit link between this credit and the renewal of Russian sanctions. The second question what Greece would use the money for?

There have been a number of reports according to which the Greek government has essentially frozen all payments to suppliers, and used the available cash to fund current expenditures. An article by Frankfurter Allgemeine on Saturday, which takes a closer look at the liqudity position of the Greek state, noted the frustration by Greek bankers in view of how QE has improved the liquidity position of banks in the EU, apart from Greece. One banker is quoted as saying: It rains money everywhere, except here because the government has opened the umbrella. 

Over in Washington, there have been a lot of sound-bytes over the weekend, including successive appearances of Wolfgang Schauble and Yanis Varousfakis at Brookings, but these have mostly generated distracting noise. The newspapers have been full of this stuff. Read it if you have loads of time. It matters not. The spring meetings were overflowing with pessimistic officials. 

Frankfurter Allgemeine had an interesting story, according to which the closest aides of Mario Draghi, Jean-Claude Juncker, Christine Lagarde and Alexis Tsipras have formed a secret "Frankfurt dinner group", which has been meeting three to four times per week (!), mostly by phone conference, occasionally over dinner at midnight in Frankfurt. The idea behind this group is to create an unofficial channel of communications - since the official ones are all clogged up. The article says the group's job is to correct policies. The article says the group managed to change the Greek position on the IMF loan repayment. The Greek finance ministry, according to this article, had been the source of rumours that this would not be repaid, while the group acted to shift the Greek position. The purpose of the group is to find a compromise in the negotiations. The article also said that top-level communication is essentially frozen. Juncker has not spoken with Tsipras for four weeks.

Our other stories

Today we also have stories on the Finnish election results, where Greece is looking for new funding, commentaries on alternative Grexit strategies, and a new national debate in Spain.

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