EU angry at new US sanctions against Russia

Both houses of the United States Congress have now voted to approve new sanctions against Russia. The bill also blocks Trump from lifting sanctions on Russia. The measure also includes new sanctions on Iran and North Korea.

The bill was passed earlier in the House by a vote of 419 to 3. The vote in Senate was 98 to 2.  Senator Bernie Sanders from Vermont and Rand Paul a Republican from Kentucky were the two who voted no.  Starting a new cold war with Russia and worsening relations with Iran and North Korea are a bipartisan affair. Sanders said on Twitter "following Trump's comments that he won't recertify Iran's compliance with the nuclear agreement I worry that new sanctions could endanger it."

While Trump could veto the bill, given the overwhelming majorities by which the bill passed the two houses it would no doubt be over-ridden by more than the two-thirds majority needed. Senator Bob Corker, a Republican from Tennessee said that he had talked to Secretary of State Tillerson about the legislation in the past week. Corker, the Foreign Relations chair said:
Sen. Bob Corker (R-Tenn.) downplayed the chance that Trump would use his first veto on the bill, noting he had talked to the president and Secretary of State Rex Tillerson about the legislation during the past week. "It's just  not a good way to start a presidency to veto something and then be soundly overridden. It's not something I would do, but they might choose to do it."  Trump might do what makes little sense just to show that he disapproved of the bill. The bill could have serious repercussions not just with US relations with Russia and Iran but with Europe as well.

Germany warned that it was unacceptable for the US to use sanctions against Russia as a tool of industrial policy and said that there should be close coordination on any proposed sanctions between the EU and the US. A German foreign ministry spokesperson said that Germany could not accept the carrying out of an industrial policy in the guise of sanctions.

The EU went further and said that it was ready to act within days to counter proposed US sanctions on Russia because they threatened EU energy security. The EU see the unilateral addition of sanctions as breaking the unity between the EU and the US in response to Russia's's annexation of the Crimea and support for separatists in the Ukraine. EU chief executive Claude Juncker said:  "The U.S. bill could have unintended unilateral effects that impact the EU's energy security interests. If our concerns are not taken into account sufficiently, we stand ready to act appropriately within a matter of days. 'America First' cannot mean that Europe's interests come last." The EU is also preparing to use an EU regulation to block any attempt by the US to apply its sanctions using extraterritorial measures. If the EU is unable to settle measures through diplomacy it will file a complaint with the World Trade Organization.

The US is bringing countries such as China and Russia closer together as exemplified by the joint naval exercises in the Baltic Sea by the two countries right on NATO's doorstep. It may be that Russia will also punish the US by giving more support to the Taliban and Iran could do the same. The US will discover that its unilateral punishment of other nations is not without cost.

Greece manages to scrape up funds for another payment to the IMF

The Greek government managed to scrape together enough cash to pay off $222 million that was due to the International Monetary Fund yesterday.

+ Add Image

To raise the cash, the government has been borrowing from pension funds and also from the reserves of local governments. The government is also placing a surcharge on withdrawals of cash and financial transactions. This surcharge will not only raise revenue but also discourage capital flight. Greece is also considering a special levy on the country's 500 richest families to collect more cash.

Next Tuesday, Greece faces an even larger payment of 770 million euros to the IMF. Greece also is required to pay salaries and pensions later next week. Greek officials have been talking with their creditors and EU officials to help push for a release of funds from their bailout loan, but so far creditors have insisted Greece must present and implement reforms that have been demanded as part of the original bail-out agreement. The reforms include changes to pensions and in the labor market that so far the government has refused to countenance and would go completely counter to their election pledges. Alexis Tsipras, the Greek Prime Minister, discussed with French President Francois Hollande how negotiations could be fast forwarded.

Greek officials are meeting with members of the Troika, the European Commission(EC), European Central Bank(ECB), and International Monetary Fund(IMF) or as they are now called "The Institutions" before a meeting of the Eurozone's 19 finance ministers next Monday at which the group could decide whether Greece has done enough to merit release of the remaining 7.2 billion euros of their bailout loan. In Brussels, technical talks had been extended beyond yesterday. An unidentified Eurozone official claimed that there had been visible progress after weeks of stalemate. The Greek Finance Minister Yanis Varoufakis was in Rome to discuss issues with the Italian Finance Minister, Pier Padoan and was then to talk with Spanish finance minister Luis de Guindos. Prime Minister Tsipras consulted with EC president Jean-Claude Juncker yesterday and they both affirmed that "constructive talks should continue."

Tsipras and Juncker issued a joint statement that seems to indicate that Greece may be reconsidering its opposition to demands for pension reform. The two spoke of the remaining reforms Greece needed to implement. These included modernizing the pension system "so that it is fair, fiscally sustainable, and effective in averting old-age poverty". The EC will no doubt stress the fiscally sustainable aspect aspect. The Troika have been demanding pension reforms that Greece has so far resisted. The other main issue was labor market reform and that also the two agreed must be addressed and they said they had discussed "the need for wage developments and labor market institutions to be supportive of job creation, competitiveness and social cohesion."

While the statements sound optimistic, there are reports members of the Governing Council of the ECB are growing impatient at Greece's reluctance to agree to and implement reforms demanded. They also worry about their exposure to Greek bank debt and are reluctant to bend the rules any further to help Greece out of its cash difficulties. German Finance Minister, Wolfgang Schaeuble, who has taken a hard line against Greece said that it was in Germany's interest to help Greece but not at any cost and that just giving more aid without changing the conditions under which Greece was operating made no sense. He also said that Greek demands for World War II reparations were nonsense. We should find out next week whether there is any breakthrough in negotiations. If there is a breakthrough, it would appear that is because Greece has basically caved in to the demands of the Troika.

Greece receives over $2 billion from European Commission to avoid cash crunch

Head of the European Commission(EC), Jean-Claude Juncker says that 2 billion euros($2.15 billion) in unused funds will be made available to help Greece avoid a looming cash crunch.

+ Add Image

The offer of the funds, comes just a day after talks between Greek Prime Minister Alexis Tsipras and European leaders in Brussels dealing with Greece's compliance with the terms of the extended bailout loan. The leaders, including German Chancellor Angela Merkel said that Greece has agreed to draft a new reform plan that would allow it to receive further funds as part of the loan. Tsipras said that he was now "more optimistic" subsequent to the talks. Greek authorities also claimed that they were gradually coming closer to meeting the requirements of the loan extension.

The Troika of creditors, the European Commission, European Central Bank, and International Monetary Fund now rebranded at the insistence of Greece as "the institutions", agreed they would extend the current bailout program until June of this year. However, there have been constant conflicts between Greek's creditors and the Greek government.The Syriza government has been passing humanitarian legislation that will help the poorest Greek households with free food and electricity and will also allow taxes that are in arrears to be paid by instalments. The European Commission has in effect vetoed such legislation on the grounds that it was introduced without consultation and violated the terms of the loan extension. The creditors demand reforms in the economy including cutting government expenditures and continuing with privatizations

Since the two bailouts in 2010 and 2014, and the implementation of austerity conditions, the Greek GDP has shrunk by 25 per cent. One third of Greeks now live below the poverty line. Unemployment is around 30 percent but half the young people are unemployed. Gaining access to this new money is a victory of sorts for the Greek government.

Juncker, the EC president, said that the new funds will not be tied to the existing bailout loan. but can be used as aid for people and companies hardest hit by the debt crisis. This sounds very much as if even the EC recognizes the need behind the very legislation it had just vetoed. No doubt, Juncker hopes that this move will.make it easier for the Greek government to propose reforms that will meet the approval of creditors as Greece has pledged to do. Since these funds are not tied to the bailout, they can be used for purposes that might run counter to the conditions for the bailout funds. Greek Prime Minister Tsipras praised the decisionsaying:"It is a good sign. It was recognized that there is a humanitarian crisis in our country and that there must be a common effort against it — because it was the not the result of some natural catastrophe."

The EU creditors have been complaining that Greece is not cooperating with technical staff who are trying to monitor Greece's compliance with the bailout terms. The IMF calls Greece the least cooperative client they have ever had. EU leaders have told Tsipras that within the next few days he must come up with detailed budget cuts, and also tax increases, and other reforms before any more bailout money will be released. Tsipras refused to specify a date for delivery of the reforms. What is happening may be another case of kicking the can down the road only to face the same issues within a short time. For now, however, Tsipras seems finally to have gained more breathing space and some recognition of the political problems he faces in Greece.

Support grows for fresh negotiations on Greek bailout outside of Troika

Greek finance minister, Yanis Varoufakis, is gaining support in high official circles for his refusal to negotiate Greek debt provisions through the Troika arrangement with the European Commission, European Central Bank, and International Monetary Fund.

The president of the European Commission, Jean-Claude Juncker, claims that he wants to scrap the Troika's mission that at present governs oversight and negotiations over Greece's $360 billion bailout. However, the claim comes from a report by anonymous sources in the European Commission by the German daily newspaper Handelsblatt. The source quotes Juncker as saying that an alternative had to be found quickly. Again quoting unnamed sources, the paper also said that German government officials were prepared to reform arrangements for debt negotiations between the three members of the Troika and Greece. However, the sources also said that new arrangements would be possible only if the previously agreed reforms and savings targets were met. This would mean Greece would still be bound by the same arrangements that Syriza had vowed to reject. There is no mention of cutting debt. The reforms agreed to would include all the austerity provisions. 

Juncker is set to meet Greek Prime Minister Tsipras on Wednesday in Brussels. He has repeated again that he is not prepared to accept any direct write off of Greek debt, which at present is about 175 percent of GDP. However, it would seem that contrary to campaign pledges, Varoufakis is now suggesting a plan of "debt swaps" rather than any write-off of Greek foreign debt: Varoufakis called his plan a "menu of debt swaps" that meant Athens would no longer call for a write-off of Greece’s 315 billion euros ($360 billion) of foreign debt, the Financial Times reported. Varoufakis, in London, assured investors that Syriza's plan would not inflict losses on privately held bonds. He also pledged reforms to the Greek economy. The source said that the bond swap plan was a "work in progress": "These bonds held by the ECB right now can be restructured. It's possible to turn it into perpetual bonds to be serviced, or growth-linked debt. It's the same with a proportion of the other bilateral bonds held by the official sector." Varoufakis himself said: "What I’ll say to our partners is that we are putting together a combination of a primary budget surplus and a reform agenda. I’ll say, 'Help us to reform our country and give us some fiscal space to do this, otherwise we shall continue to suffocate and become a deformed rather than a reformed Greece'.."We are in substantial negotiations with our partners in Europe and those that have lent to us. We have obligations towards them."  

The Greek government plans to target wealthy tax-evaders and predicts a budget surplus of 1 to 1.5 percent of GDP. He said the government plans to achieve this even if this means that it will not fulfill its election spending promises. Today Tsipras is meeting with Italian Prime Minister Renzi, who may be quite sympathetic to Tsipras' demand for more lenient lending terms. Michael Hintze, CEO of hedge fund CQS, was asked after Varoufakis' meeting with international investors if Varoufakis had proposed a debt swap and he said without elaborating: "It's more balanced and broader than that." While Tsipras and Varoufakis may manage to bypass the Troika, this does not mean that any debt will be written off, or that many austerity conditions will be removed, or that spending promises will be kept. 

Some sources are suggesting Syriza achieved a great victory: Although the financial media is blathering about negotiations and gamesmanship, the truth is Greece just blew up the Empire's Death Star of debt. There's nothing left to negotiate except the official admission that the Imperial Death Star of debt, the most fearsome threat in the galaxy, has been blown to smithereens. The author, Charles Smith, thinks that Greece will exit the euro zone and thus be released from the debt trap that it faced under the rule of the Troika. So far there is little evidence that will happen. The EU authorities may accept direct negotiations as appears to be already in progress but there is no indication of any debt being written off. 

What Syriza appears to have done so far, as well as bypassing the Troika,is to exploit divisions within EU authorities. Unlike Juncker, the German Finance Ministry through its spokesperson said: "The German government sees no reason to scrap this mechanism of evaluation by the troika." A Bloomberg article mentions that Varoufakis has co-written a text on Game Theory. His actions already appear to have achieved one goal, of negotiating outside of the bounds of the Troika. He also appears to have further split EU authorities with some agreeing to dump the Troika arrangement. On the other hand he has made strong moves to ease investors fears by plans that jettison the whole idea of a debt write-off. It is not clear, where this is all going but at present the Grexit scenario has receded into the background. 

Nicholas Spiro. of Spiro Sovereign Strategy in the UK, thinks that Varoufakis' anti-austerity rhetoric and moves against the Troika may be part of a strategy of trying to establish their credentials with their electorate but he concludes of Syriza's leaders:"They will play this game as long as they possibly can. This will give them political cover to climb down." This assumes that the goal of the game they are playing is to successfully negotiate an end to Greece's debt crisis with EU lenders. I think it is too early to tell. The moves are too ambiguous to be sure that is the goal of the game the Syriza leaders are playing. Most markets seem to be unfazed by what is happening and have been going up since Monday, until this morning at least.