Tuesday, July 21, 2015

Eurozone - Return to calm but not normality

The payment of ECB and IMF obligations seems to be topping the institutions’ scale of priorities. The disbursement of the €7.16bn EFSM bridge loan, approved last Friday, has allowed Greece to meet its compelling short-term obligations. Yesterday, the Greek government disposed both the reimbursement of the €3.7bn bond held by the ECB and the payment of around €2bn to the IMF. As confirmed by IMF spokesman Gerry Rice, Greece is no longer in arrears to the IMF. In another step in the search of normality, Greek banks were allowed (upon the positive advice of the Bank of Greece and the ECB) to re-open yesterday. While many of the capital controls will remain in place, partial functionality should nonetheless help customers. They can now cumulate the €60 daily withdrawals into a single weekly withdrawal and have re-gained access to their bank deposit boxes. With cash holdings in boxes reportedly amounting at around €10bn, this could be another handy source of short-term personal liquidity. The government reshuffle put in place by Tsipras over the weekend was not a game changer. Sure, it proved that in principle the party leadership is keen to re-build reciprocal confidence with lenders and that is unwilling to accept ambiguity when working for a third package. However, for the time being, the destiny of the 39 rebels (who voted against the bill or abstained) has not been decided yet. Tomorrow, the Greek Parliament will vote on the second set of prior actions agreed with lenders: these will include a new code of civil procedure and the adoption of the EU’s Bank Recovery and Resolution Directive (BRRD). In view of the vote, it seems reasonable to expect a replication of the voting pattern shown last week. While the passage of the bill does not seem at risk, the outcome of the vote deserves attention, as any further haemorrhage of support from Syriza’s MPs could in principle weaken Tsipras’ position, pushing him to seek snap elections in the autumn. A positive passage of the second bill should in principle pave the way to the quick start of actual negotiations. With representatives of Greece’s creditors (the former Troika) and of the ESM reportedly already in Athens, pressure for a rapid agreement on the memorandum of understanding of a third programme is already mounting. Yesterday, the president of the EU Commission, Juncker, and of the Eurogroup, Dijsselbloem, said that the Greek parliament must complete the bailout agreement with the ESM within two weeks, as this would allow the disbursement of funds in time for Greece to meet its August financial obligations (another ECB held bond matures on 20 August). At the same time, German politicians are still licking their wounds after last week’s agreement to reach a deal. It still does not feel good. According to media reports, there had been different views on Greece and a possible Grexit between Chancellor Merkel and Finance Minister Schäuble. While Schäuble is still flirting with the idea of a Grexit and even hinted at the possibility of his own resignation, Merkel remarked during a television interview that the Grexit discussions should be stopped. The negotiations had started. Some calm has returned to Greece. After last week’s turbulences, yesterday marked the first day of Greece in a new environment. An environment, in which banks are a bit more open but not really open, taxes are higher and Greece has fulfilled short-term payment obligations but is still struggling to find a third bailout. Clearly not a return to normality.

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