May 06, 2015


Greece says No deal unless creditors shift their position

Greece blames the disagreements between the IMF and the EU for failure to find a compromise and warns that if the IMF and the Commission do not reduce the number of red lines, there will be no deal, a government official told Bloomberg. This new offensive is backed up by a strongly worded internal document, translated by Greek Analyst, saying there are red lines "everywhere" with the IMF insisting on labour and pension reforms and expecting a debt haircut while the Commission is strict on the primary surplus and its opposition to debt relief. The document says the responsibility for this impasse lies exclusively with the institutions. As a consequence, the Greek government decided not to bring into parliament the multi-reform bill before there is an agreement. There is also a reference to an "exit plan". We presume this does not refer to Grexit but to an exit from the programme. 

"not to bring [for a vote] in the Parliament the multi-bill before there is potential for an agreement.

to put on the table of discussion the ‘next day,’ that is, the exit plan [of the country] to the markets and the financing of growth in the post-June era"

FAZ says both institutions are at loggerheads, as debt sustainability is the issue for the IMF, while the Commission's priority is to keep Greece inside the eurozone. The IMF as well as Wolfgang Schauble and others from the eurogroup denied FT reports that Poul Thomsen told finance ministers in Riga that the IMF would opt out of the deal if the eurogroup does not accept a haircut. Thomsen reportedly insisted that the Greek side has to move substantially to unblock the negotiations. But behind this who-said-what debate it has been clear for some time now that debt sustainability, defined by the IMF in 2012 as a debt-to-GDP ratio reaching 110% by 2022, is an unrealistic assumption, putting into question the IMF's engagement, which requires debt sustainability to be assured.

The IMF's forecast for Greece is also strikingly more pessimistic than the spring forecast by the European Commission, notes the FAZ. The IMF expects the primary surplus to turn into a 1.5% deficit, while the European Commission is still expecting a 2.1% primary surplus down from 4.8% three months ago. The Commission forecast sees the budget deficit turning negative, at -2.1% rather than a 1.1% budget surplus this year, and this assumes that Greece will get back the SMP profits from the ECB, Reuters reports. Pierre Moscovici did not explain the difference with the IMF figures, instead referring to the heightened uncertainty. The Commission also slashed its growth forecasts to 0.5% for this year from 2.5% only three months ago, expecting the economy to enter a recession in the last quarter. 

At a technical level there has been some progress though. Greece now stands ready to "immediately" finalise a €1.2bn deal with Fraport to run regional airports and reopen bidding for a majority stake in Piraeus port, a senior privatisations official said on Tuesday according to Reuters. But there was also movement away from a compromise in Athens where MPs passed the government’s proposed changes to the public administration, including the rehiring of civil servants sacked by the previous coalition, according to Kathimerini. Pasok and New Democracy MPs walked out in protest.

There was nothing worth reporting this morning from Dragasakis' meeting with Mario Draghi or Varoufakis' visit in Paris and Brussels yesterday. The ECB is meeting today to talk about the ELA for Greece. No decision on a haircut is expected, nor one on raising the cap for T-bills, according to Kathimerini. What is on the cards is a slight increase in the ELA funding. The article wonders whether Greece's strongly worded intervention is to have any effect on the course of the negotiations. Surely enough, nobody expects a deal anymore for the eurogroup meeting on Monday, a statement about progress at best.

The heightened sense of a crisis is now also impacting eurozone stock prices.

Our other stories

Today we also have a wide ranging look at the commission’s spring forecasts; on the state of the eurozone financial sector; German party politics and how it is destabilising the government; and why underlying price pressures don’t look like pushing inflation up yet.

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