Greece: Time Dangerously Slipping

Published on February 18, 2015

** The fact that the Greek team has today leaked to the press the entire minutes/memorandum of its earlier proposal to the Eurogroup is not a positive signal for how close to a deal the Greek side is or was with the EU. That may have been their intent with the leak and in the way the press has been reporting it, but it is a rather bad sign for how Athens is still trying to negotiate on the basis of its original position.

** For all the assurances in how close Greek negotiators were in reaching a deal on the basis of a so-called Moscovici/Juncker plan — if only the Eurogroup could have tweaked the demands of their hard-liners — that ship already sailed on Monday (see SGH 2/16/15, “Greece: Hardball”). And time is dangerously slipping.

** The ECB will almost certainly, as we have been reporting, and as is now widely expected in markets, agree today to continue its ELA program to allow Greek banks to fund themselves through the Bank of Greece even if there is no public announcement as such. But we wonder if that is not also accompanied by leaks and with stark reminders in subsequent public comments that the ECB support is not automatic, and their mandate will need to be respected and protected. In fact we would count on it. An increase in the limit if needed may pose a further communications challenge in reflecting worrisome additional signs of stress, rather than a glib signal of an ECB that will be there no matter what.

** And there are reports today out of Greece that the cash crunch may be a little tighter than originally thought. Expectations originally were that Greece would have until the end of March for the real “drop dead” cash deadline date, but that is now drifting forward.

** There is also a good deal of concern among creditors that Greece’s performance numbers have been slipping – both the fourth quarter GDP and surplus numbers have missed original expectations. While economic data and performance will not be a determining factor in the negotiations, it only reinforces the hesitation from Greece’s creditors to provide Tsipras with anything close to the leeway he wants and has loudly demanded on key budgetary decisions if he is to get more money (see below).

** To that, as the Eurogroup’s stated Friday deadline approaches, reports in the news and on the wires continue to refer to proposals being cobbled together by Greece – originally to be released today but now postponed until tomorrow – as attempts to reach agreement on a “program extension,” but Greece continues to call it by other names, such as a “loan extension.” And those words still very much matter.

** As Schaeuble stated bluntly, the creditors have little reason at this point to simply “trust” that the new government of Greece will deliver on even a revised agreement on broad macroeconomic targets from what was agreed on for the original program, meaning specifically how they actually propose to change the mix of policies while committing to an overarching primary budget target as we have been saying of, for example, 1.5% of GDP.

** To wit, in the latest, leaked proposals today, Syriza is in essence still making vague, hard to measure promises and commitments with somewhat dubious chances for meaningful success in exchange for very real and concrete concessions.

** They are long apparently on, for example, projecting 5.5 billion Euros from better tax collection, going after the rich, and cracking down on corruption, measures everyone will like and is lauding – they are about as controversial as kissing babies – while still demanding freedom to roll back the wage, pension and labor market austerity that is so near and dear to Syriza’s electoral platform.

** And while Greece may offer, according to the latest leaked reports, to make labor adjustments in conjunction and coordination with European partners and the United Nation’s ILO, (International Labor Organization as a reminder), we would be relatively secure in assuming that is not exactly the type of surveillance Germany – and other creditors – will sign on to as a consolation for dropping the “program.”

** Tsipras is also pushing forward as he promised to the Greek electorate with plans to present his labor reforms to parliament – and this is a critical point – in an imminent fashion. The need politically for Syriza to deliver on this promise quickly almost by definition means it is not just an idle threat but a real demand from Syriza to hold that vote well within the time frame of whatever period an extension will cover.

** That is clearly problematic, although it may encourage the Greek side to move closer to the shorter and less expensive extension period we wrote even Berlin would consider (see SGH 2/13/15, “Greece: Structuring and Selling a Marginal Deal”) as opposed to their original demands and market expectations of a six month extension.

** Tsipras’ assurances on privatizations are problematic as well. Missing privatization targets has been a sore point for the creditors almost from the very start of the bailout program, even under the friendlier New Democracy-led government of Antonis Samaras. Now Tsipras is assuring that his government will not halt ALL privatizations but only those that are “not in the national interest.” That is nice, but fairly marginal if any solace to creditors when it comes to expectations for any actual revenue ever coming from the sale of assets.

At this rate we would not be surprised if Friday’s target for a deal is not met and continues to be pushed dangerously backwards.

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