On Monday we got the usual jawboning out of Greece’s embattled leadership, with both PM Alexis Tsipras and FinMin Yanis Varoufakis swearing that a deal with creditors is imminent. Here’s a sampling of the rhetoric:
- TSIPRAS: GREECE HAS SUBMITTED CONCRETE PROPOSALS TO CREDITORS
- VAROUFAKIS: GREECE IS `VERY CLOSE' TO DEAL WITH CREDITORS
- GREECE WILL NOT DEFAULT, FINANCE MINISTER VAROUFAKIS SAYS
As usual, it wasn’t long before EU creditors were out telling a different story.
- EU SAYS MORE TIME, EFFORT NEEDED TO BRIDGE GAPS ON GREECE
- EU SAYS SLOW-PACE PROGRESS BEING MADE TOWARD GREECE AGREEMENT
Perhaps most importantly, it appears as though Tsipras’ hopes of cementing a deal in Riga may be far-fetched:
- JUNCKER RULES OUT POSSIBILITY OF GREECE AID DEAL IN RIGA
And while Juncker claims he is optimistic about a deal in “late May or early June”, it’s not at all clear that either Greece or its creditors truly appreciate the potential for the type of ‘accident’ that German FinMin Wolfgang Schaeuble has been warning about. That is, a sudden, acute cash crunch — triggered by an ECB decision to raise the haircut on collateral pledged by Greek banks for ELA, for instance — could quickly push the country over the edge before a political solution is agreed upon.
Meanwhile, in Germany, Angela Merkel is attempting to head off staunch opposition from lawmakers concerning further coddling of what they perceive to be a belligerent Greek government. As we reported [9] earlier this month, the German Chancellor has been under pressure from members of her Christian Democratic bloc to essentially cut Greece loose. Now that pressure is building, leaving Merkel with the unenviable task of selling yet another Greek bailout to an increasingly hostile audience.
Via Bloomberg [10]:
German Chancellor Angela Merkel is trying to head off a potential revolt from as much as a third of her bloc’s lawmakers as she tries to up line support for a compromise deal with Greece, party officials said.
Caucus leaders of Merkel’s party are working on the objectors, telling them they may be asked to approve further aid to ward off a default even if Greece refuses to implement all changes demanded by creditors, according to three officials. Merkel has been calling small groups of dissenters to the chancellery to tell them that Greece leaving the euro area would risk causing geopolitical instability in the region, one of the people said. All the officials asked not to be identified because the discussions are private.
Merkel’s desire to keep Greece in the euro is fraught with political risk given the level of exasperation in Germany with Prime Minister Alexis Tsipras after four months of brinkmanship. Her strategy depends on Greece’s government making enough concessions to allow her to sell the deal to lawmakers and the German public.
As European officials warn that time is running out for Greece’s finances, Merkel’s Christian Democrat-led caucus will discuss the way forward at its closed weekly meeting in Berlin on Tuesday. While some German policy makers have hardened their stance against helping Greece, others are hinting at more flexibility to avert a financial collapse…
Any substantial changes to the conditions for Greece’s 240 billion-euro ($271 billion) aid program need approval by the full German lower house, or Bundestag. As many as 100 of Merkel’s 311 lawmakers may still be holdouts, one of the officials said.
Given the above, it would seem that Athens has, at least to some degree, been successful at leveraging the so-called ‘Russian pivot’, as we certainly imagine that when Merkel speaks of geopolitical instability and jeopardizing European influence, she is alluding to the multiple overtures (ranging from energy partnerships [11] to development bank invites [12]) that Moscow has made to Athens over the course of Greece’s tense discussions with European officials.
We’ll leave you with some soundbites from the Nobel laureate crowd (whose opinions we would normally view as a contrarian indicator, but this particular prize winner happens to be an HFT critic so we’ll let it slide). Here’s Joseph Stiglitz with his assessment of what a Grexit means for the future of the failed experiment that is the EMU:
“If Germany and the rest of Europe refuses to change the program, I think there’s no alternative [to Grexit] which would be really serious.”
“You really are bringing more instability into Europe [and the monetary experiment would] go down the tubes.”
