Wednesday, June 24, 2015
Final showdown - this time for real?
It seems as if the excessively used words of “final showdown” in the Greek crisis are finally here. And they are for real. Honestly, it becomes harder and harder to comment on the Greek crisis in a meaningful way. Yesterday was another example of confusion and diffusion. The day started with news reporting that Tsipras had told the Greek parliament that some creditors had rejected the Greek proposals. Later in the day, it became clear that the IMF had indeed issued a counterproposal, amending and integrating the Greek offer. No break-up of the negotiations, but normal exchange of proposals in an exhausting bargaining process. Later, the Eurogroup meeting ended with another unexpected twist. While earlier in the day, expectations were that the Eurogroup would negotiate for as long as needed to reach a deal with Greece, the Greek crisis took yet again another dramatic turn. The Eurogroup was suspended inconclusively after only one hour. Instead, a new meeting with Commission President Juncker, Greek Prime Minster Tsipras, Christine Lagarde from the IMF, ECB president Mario Draghi, Eurogroup president Dijsselbloem and ESM chairman Regling was held at midnight. Again inconclusive. All of this provides little evidence to become more optimistic about a positive outcome of the Greek negotiations. Today, the meeting marathon will continue with technical meetings of senior officials already this morning, at 6am, another meeting at the political level at 9am, another Eurogroup meeting scheduled for 1pm and then later at 4pm the European summit. Obviously and technically speaking, this meeting marathon could continue for many days (even weeks), European leaders will still be in Brussels tomorrow and a deal could even be signed off in the weekend. However, it is hard to see that all parties involved in the negotiations have the energy and will to continue much longer. Trying to separate facts from noise, the substantial differences between Greece and the Eurozone creditors mainly concentrate on three main areas: taxes, pensions and debt relief. While there seems to be a general agreement on the headline targets for the primary balance, there are still huge discrepancies on how to get there. It looks as if currently the main hurdle seems to be taxes. Instead of cutting public expenditures, the Greek government proposed to increase taxes and strengthen revenues. For a country not really known for a good track record in tax collections, this looks like a risky strategy. The creditors proposed to trim the Greek proposal of an increase in the corporate tax rate and reject the introduction of a one-off corporate tax on corporate profits. The more controversial area seems that of pension reforms. The institutions clearly want Greece to accelerate the transition towards a broad-based implementation of the limit of the statutory retirement age of 67 years, requesting that to happen by 2022, and not by 2026, as in the last Greek proposal. Also, the counterproposal asks to raise health contributions and to harmonize the contribution rules for all pension funds, seeking a closer link between contribution and benefit. Finally, the never-ending issue of debt relief is probably the biggest stumbling block. The Greeks want it, the others don’t want to give it (or eventually only at the end of a long reform ride). Looking at the substance of the differences between Greece and its creditors, a compromise still looks possible; at least in our view. The two crucial questions are how to deal with the issue of debt relief and how to eventually sell any compromise back at home. The latest comments from the Greek parliament suggest that selling at home might still be a challenge for Tsipras. Still, even if a compromise could be feasible, the series of latest events sends contrary signals and does little to soften atmospherical disturbances. In fact, it seems as if the entire Greek crisis has switched into warp speed. There are now as many contradictory statements, denials, inconclusive meetings and ad hoc special meetings on a single day as there were before within a week or a month. In our view a clear sign that the excessively used words of “final showdown” can again be used with a good heart.