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Clouds Gather over Monday’s Optimism on Greece

The European Central Bank has extended its emergency liquidity assistance program to battered Greek banks by a little less than €1 billion today—less than half of the €2 billion extended yesterday. The move underscores growing confidence that some kind of deal will be secured before Thursday’s EU summit.

Here was the statement of Jean-Claude Juncker, Commission President, on the summit, via the Financial Times:

I simply wanted to say that the proposals that the Greek government was submitting to our meditation tonight and early this morning – although these proposals were coming in with some delay – are a major step taken by the Greek authorities into the direction of the expectations of the three institutions involved in that process.

I am confident that the Eurogroup on Wednesday will produce results to be submitted to the European Council on Thursday. I am convinced that this is not only our intention to finalise the decision-making process this week – we will finalise the process this week.

The FT further states that “Even Wolfgang Schäuble, the German finance minister, on Tuesday softened this tough verdict of the previous morning, describing the latest Greek proposals as a starting point for further negotiations.” Not everyone is quite so excited, however. The Wall Street Journal reports that politicians in Berlin are grumbling, and the IMF is not satisfied either:

“It is still short of everything that should be expected,” IMF Managing Director Christine Lagarde said Monday, suggesting Greece will have to modify its proposals significantly to win the IMF’s backing.

Some differences also remain on the details of an overhaul of Greece’s value-added taxes, where creditors have demanded increased revenue and the government is trying to limit the extent of tax increases that would hit its lower-income supporters.

IMF representatives have told European officials that they are also not satisfied yet by Greece’s broader economic overhaul plans beyond its budgetary promises. The IMF sees a wider, business-friendly shake-up of Greece’s economy as essential if the country is to improve its long-term economic growth.

And Syriza politicians back home in Athens are in high dudgeon as well, according to Reuters:

“I believe that this program as we see it … is difficult to pass by us,” deputy parliament speaker and Syriza lawmaker Alexis Mitropoulos told Greek Mega TV.

“The prime minister first has to inform our people on why we failed in the negotiation and ended up with this result,” he said. “I believe (the measures) are not in line with the principles of the left. This social carnage … they cannot accept it.”

Though markets appear to remain convinced that some kind of resolution is at hand, there is still plenty that could go wrong with all of this. Time is very tight, with any procedural delays increasingly poised to set off a series of events that could spiral out of control. If a deal is not hammered out by the end of the week, for example, the ECB is likely to end its support of Greek banks, and Athens would be forced to try to impose capital controls in the midst of a bank run (something Greek Finance Minister Yanis Varoufakis yesterday said would be very difficult at best).

May you live in interesting times.

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  • Andrew Allison

    Monday’s optimism was wishful thinking. The new proposals from Greece were enough to restart negotiations but clearly aren’t enough to satisfy the creditors; there seems little hope that a deal satisfactory to the creditors will be acceptable to the Greek parliament; and based on past performance very little chance that the Greeks will actually implement agreed-to reforms. The Greek farce has several more acts to go before the curtain falls.

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