Markets waiting to see who will blink first in Greece debt talks
Troika ready to offer ‘final proposal’
It was a familiar scene for markets: once again, the fate of Greece’s economy came down to a late-night meeting between Europe’s most important power brokers.
Monday’s meeting in Berlin, which stretched into Tuesday morning, was seeking to come up with a compromise to avoid a Greek default. That scenario could result in Greece leaving the eurozone, which economists fear would have a devastating effect on what is the world’s largest economy.
Greece currently needs to make a payment of 300-million euros to its creditors by Friday, and requires another 13-billion euros worth of payments in the next month. While it is not clear when exactly the country will run out of cash, most analysts agree that it is likely very soon.
Greece’s creditors, the troika — which includes eurozone countries, the IMF and the European Central Bank — said they reached a consensus at the meeting and are prepared to present a “final proposal” to the Greek government, asking for reforms in exchange for debt relief.
Sources from the closed door meeting suggested that the deal could make some concessions for Greece, something the same members of the troika had been reluctant to do.
“It covers all key policy areas and reflects the discussions of recent weeks. It will be discussed with (Greek Prime Minister Alexis) Tsipras tomorrow,” a senior EU official said.
Despite the optimistic tone of the meeting, markets reacted mostly negatively to the news. The S&P 500 fell 2.13 points, or 0.10 per cent, to 2,109.60. The Euro Stoxx 60 Index fell by 13.15 points, or 0.37 per cent, to 3561.89. Canada’s S&P/TSX Composite Index was one of the few winners Tuesday, climbing 24.48 points, or 0.16 per cent, to 15,098.61.
Greece’s prime minister was not invited to Monday’s meeting, but countered Tuesday that his own government was ready to submit a “realistic plan” for Greece to avoid a default. The troika has asked for concessions, such as civil service cuts, pension reform, and delaying the retirement age.
So far, Greece’s government has rejected all previous proposals in the four months of bickering. The country’s anti-austerity government, elected on a platform that it would stand up to Greece’s creditors and not make concessions on the country’s generous social safety net, has spent much of its time in office stalling the troika, but Tsipras may to have to swallow some painful reforms.
While full details about the discussion were not released, pundits are hopeful the meeting will lead to results soon if hints of concessions are true.
The European Union’s Pierre Moscovici, who attended the meetings, said on French radio Tuesday that “discussions were fruitful.” German newspaper Die Welt, meanwhile, reported that Tsipras could potentially compromise on reforms to Greece’s pension system, something he said in the past would not be open for discussion.
The troika wants significant concessions from Greece for debt relief, including pension cuts and a higher retirement age (workers in Greece can retire at 57 if they wish and receive a full pension).
The attendees at Monday’s meeting included German Chancellor Angela Merkel, French President Francois Hollande, Christine Lagarde, head of the International Monetary Fund, and European Central Bank president Mario Draghi.
Greece’s anti-austerity government took power in January on a platform that vowed to stand up to its creditors. That has made negotiating difficult.
But some market spectators are already talking about the meeting as potentially setting up a deal, which could prove lucrative for investors.
BNP Paribas said in a note to clients Tuesday that anyone looking to capitalize on a deal should buy euros against the Swiss franc, saying the trade offered better upside than buying against the U.S. dollar — the more popular pro-euro play.
A default by Greece today would not be nearly as damaging as one five years ago, when the country’s debt crisis first emerged. More than 80 per cent of Greek public debt is currently owned by the troika, which would cushion any blow a default would have on Europe’s banks.
New regulations have also helped create firewalls as European countries have essentially spent four years building up institutions to be able to withstand a Greek default.