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July 03, 2017

Can Greece exit its programme without a credit line?

Alexis Tsipras is to defend his record and the eurogroup deal in parliament today, in an debate requested by New Democracy leader Kyriakos Mitsotakis. The eurogroup deal and the garbage collectors' strike provide plenty of material for a hefty exchange: the eurogroup deal is still unpopular, with no guarantee of a debt relief. And Tsipras’ new narrative that Greece could exit the programme without a precautionary credit line sounds like one of his many ambitious targets that he failed to deliver.

Market access is the new yardstick to measure the success of the Syriza government. Macropolis explains the logic: if they can get lower rates than New Democracy in 2014 and succeed in exiting the programme without a credit line like the one on offer to Antonis Samaras, then Syriza could argue that they did get a better deal and that it was worth the time and effort. The Public Debt Management Agency (PDMA) is reportedly already working on tapping the market twice in the coming weeks: to swap the three-year bond issued in July 2014, and to roll over a five-year bond issued in April 2014. 

The domestic crisis last week was a strike of garbage collectors, which left many neighbourhoods with piles of rotting trash in temperatures of 40C. It has been resolved for now but only after some heavy interventions from the government. Unions suspended the strike on Thursday after Tsipras intervened and the government topped up with concessions, including plans to hire about 2,500 permanent staff next year. Garbage collectors were protesting against eventual job losses after a court order banned extensions to short-term contracts, which could leave up to 10,000 jobs on the line.

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July 03, 2017

The softening Brexit

We always thought that Brexit would ultimately soften once people had to make concrete decisions. That would have been true even if Theresa May had won the election with a huge majority, as the UK would simply not have been prepared for a cliff-edge Brexit in 2019. We are now looking at the scenario of a transitional phase similar in scope to the current position (i.e., in the single market, with all obligations but no rights), during which the EU and the UK would negotiate a wide-ranging FTA with some service components. The FT writes this morning that a delegation from the City of London will go to Brussels this week with a secret (not so secret any longer) blueprint for a post-Brexit trade deal on financial services. The FT writes that this initiative is independent of the government, but had unofficial support by senior UK officials. The plan is based on the principle of mutual access, which would allow financial groups from the UK and the other EU member states to operate in each other’s markets without barriers. It would also involve shared regulatory supervision and joint dispute resolution. There would be a break clause in the agreement, allowing either side to terminate it under certain circumstances. The FT has not seen the full proposal, saying that details are closely guarded, but this appears to be a fully worked-out proposal. The law firm Hogan Lovells acted as the adviser to the group. 

Separately, the Guardian reports that UK officials speak of a dramatic change of mood inside the Brexit department since the general election, as the government is now prioritising economics over politics. UK civil servants are pressing ministers to accept aspects of the EEA, or to settle for a Canada-style agreement. There is now a greater recognition of a trade-off between the degree of access to EU markets and taking back control. The article says that there is pressure specifically for a rethink of the opposition to a customs union deal. The issue is far from settled within the cabinet, but there is agreement that the government will have to agree a common line by October or November, at which point the Article 50 negotiations will reach a critical phase. If the UK wanted to negotiate an agreement involving customs union access, it would need to say so fairly early, as this impacts the exit talks which are currently premised on full exit from both the customs union and the single market.

Another area where Brexit is getting softer is the rights of EU citizens in the UK. Wolfgang Munchau makes the point that May’s offer to EU citizens is far from sufficient, but would soothe the nerves of the majority for now. With immigration the devil is in the details, which have yet to be negotiated. But this issue no longer looks to be a potential dealbreaker.

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July 03, 2017

Macron's state of the nation address

Emmanuel Macron will address a joint session of the two chambers of the French parliament in Versailles today. The idea is not new, and is certainly legal, but it is still different from the format that François Hollande used in Versailles after the 2015 terror attacks. Macron aims to present a roadmap of his five year presidency, similar to a state of the union address by a US president. There was a lot of controversy on whether this takes the wind off the sails of his prime minister Édouard Philippe, who is to present the government’s programme tomorrow. Far from it, say the teams around both Macron and Philippe. The government is there to implement Macron’s roadmap, and how this will be done is to be presented tomorrow. 

Choosing to go to Versailles ensures a choreographed performance in an opulent place. Despite all the revolt against the ancien régime, the French still like the display of presidential power. The bill for this event is likely to make the Germans shake their head in disbelief.

The Communists and La France Insoumise, as well as some from the centrist UDI, are boycotting the event. In the media the debate over the last couple of days was about whether or not it is a good move for Macron to do this. What will be even more important, but hardly discussed, is whether he can deliver on his promises in the next five years.

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