Thursday, June 4, 2015

Greece caves on some of its anti-austerity plans in order to reach deal with creditors

Athens May 31st--The Greek government is signaling that it will compromise on some of its anti-austerity demands in order to reach a deal with its creditors.
Greek Interior Minister, Nikos Voutsis, said he was confident a deal could be reached within a week. To reach a deal the government would be willing to push back parts of its anti-austerity program. Greece and the "institutions" or Troika of the International Monetary Fund (IMF), European Commission, and European Central Bank have been negotiating for months as Greece has tried to no avail to convince creditors that austerity provisions that are part of the condition for releasing funds from the bailout loan should be cut back considerably. The Greek government has already given way on two of its former "red lines" of privatization and taxation reforms. The main remaining red lines are pension and labor market reforms that would entail pension and wage cuts. The creditors probably will grant the Greek government a lower surplus target since a higher target was probably unreachable in any event. Voutsis said on TV: "We believe that we can and we must have a solution and a deal within the week,Some parts of our programme could be pushed back by six months or maybe by a year, so that there is some balance."Voutsis did not indicate what aspects of the program could be pushed back. There was no mention of any "red lines."
Earlier in the week the government suggested there could be a deal by Sunday May 31 but lenders were less optimistic. The lenders cited the Greek government's continued refusal to address the labor and pension reforms demanded by creditors. Voutsis claimed a powerful majority of those involved in negotiations realized there could be no further austerity strategies imposed as a way of solving the Greek problem. Nevertheless, it seems clear that a powerful group of creditors is insisting that the austerity conditions in the original bailout deal must be honored. The bailout deal terminates at the end of June and a deal to release the remaining funds must be reached before then.
Many critics of the ruling Syriza party argue that it should develop a Plan B to deal with a situation where no acceptable deal can be reached. You would think that this would be done even as a negotiating strategy. So far the narrative usually is that the Greek government will do whatever is necessary to reach a deal, although statements from Greek officials are sometimes inconsistent. This stance provides absolutely no leverage to force creditors to compromise to achieve a deal. Today, Economy Minister George Stathakis told a newspaper:"The idea of a Plan B doesn't exist. Our country needs to stay in the eurozone but on a better organised aid programme, Otherwise, mainly Greece but the European Union as well will step into unchartered waters and no-one wants that."Stathakis was confident of an agreement being reached and also claimed that Greece will be able to make its next payment to the IMF in early June.
Stock markets were lower in Europe and in North America on Friday partly on worries about Greece but the US Dow Jones index gained almost a full percentage point for May. The S & P 500 gained over one per cent and the NASDAQ 2.6 per cent.


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