May 28, 2015

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Really, really close. This time we really mean it.

Nobody understands a thing anymore now that both sides even disagree how much progress was achieved in negotiations. And yes, it feels like groundhog day, only that this time it is Alexis Tsipras himself who tells the press that negotiations are in the final stages and expected to be concluded soon, while creditors and the European Commission pour cold water over expectations saying that a deal is not immanent and that there is hardly any movement on substance.  A Greek official was even quoted saying negotiators had begun drafting a staff-level agreement, which rallied the markets for a moment, but EU officials were quick to dismiss the reports, according to Reuters.

Euro Commissioner Valdis Dombrovskis said that basically they were one month behind the schedule. Greek ‘sources’ blame the IMF for insisting on a comprehensive deal, but EU officials are no less insistent on a comprehensive package, writes the Wall Street Journal.

The main point of discontent is the size of the fiscal gap. The two sides are still said to be €1bn apart on this year’s gap. Varoufakis rejects suggestions by Jean-Claude Juncker that Greece has to find €1.8bn from VAT taxes this year. Varoufakis suggested that there is no such gap and that Greece’s lenders are using this as an excuse to “impose more austerity.” Speculations that the creditors might give in on the zero-deficit rule for supplementary pensions until 2017 also seem rather unlikely given the IMF’s insistence on this point. Macropolis writes that the most likely scenario now is Greece will be presented with a take-it-or-leave-it offer. 

Greek Deputy Foreign Minister Euclid Tsakalotos, who is also a top negotiator in talks with Athens’ lenders, told Frankfurter Allgemeine Zeitung that both sides were not only discussing the terms for completing the current aid programme, but that talks already included the conditions of additional aid.

Kathimerini reports that Tsipras was advised to make the statement amid fears of market jitters that could prompt a new wave of deposit outflows. Tsipras chose to make the statement flanked by Yanis Varoufakis to underline the government’s backing for him.

The ECB did not raise the ELA ceiling for Greek banks yesterday. Although Greece’s central bank didn’t request an increase, two people familiar with the matter told the Wall Street Journal. The Bank of Greece didn’t ask for added funding because deposit outflows have stabilised, a Greek government official told Bloomberg

There had been increased outflows over the last couple of days amid speculations of capital controls and the blip about “a small tax on ATM withdrawals”. KT Greece quotes private ANT1 TV reports saying that people withdrew €300m in just one day when Varoufakis announced the tax despite the fact it was later taken back by the finance ministry. Speculation over capital controls led to a withdrawal of €100m. In April the deposit outflow increased to €5bn from €1.9bn in March. Since the beginning of the year, €30bn left Greek banks.

Reuters quotes an unnamed source saying that the T-bill ceiling might be raised if there is a credible prospect of a eurozone disbursement. But if the payment to the IMF or the ECB is missed, it is expected to raise the credit risk and thus the discount applied to the face value of assets like Greek bonds that Greek banks can swap for central bank funding. 

U.S. Treasury Secretary Jack Lew warned that it was not a question of goodwill but miscalculation that could lead to a serious crisis.

Our other stories

Today we also have stories on a Greek conspiracy theory; off-budget spending in France; how Finnish ministries have been distributed and what it means for the rest of the eurozone; why the eurozone will not cope well with the next downturn; euroscepticism outside of Britain; when Spain hit rock-bottom; and Sarkozy’s new strategy.

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