Greece is starting to give in to requesting an extension of the financial assistance programme, but the concessions already announced are not enough to obtain the approval of all creditors. Today’s Eurogroup meeting will be a tough one, especially for the Tsipras government……………
Intesa Sanpaolo – Research Department – For professional investors and advisers only
The very first ECB’s monetary policy minutes are more impersonal than we had hoped for, as far as the vote’s distribution is concerned. Yet, they do give a flavour of the ECB reasoning and motivations and on the Council’s views on the cycle.
At 4:30pm today a tough Eurogroup meeting will begin, dedicated to discussing Greece’s official application for a six-month extension of the Master Financial Assistance Facility Agreement.
The existing framework agreement is now acknowledged by the Athens government as “binding vis-à-vis its financial and procedural content”. The Greek government’s letter asks the Eurogroup “to proceed jointly, and making best use of given flexibility in the current arrangement, toward its successful conclusion and review on the basis of the proposals of, on the one hand, the Greek government and, on the other, the institutions”. Most of the Eurogroup’s requests are largely met by commitment to guarantee the full funding of the new measures, and to refrain from “unilateral action that would undermine the fiscal targets, economic recovery and financial stability”. However, the commitment seems limited to the fiscal and financial realms, and in any case represents a significant departure from the commitments made in the Memorandum; indeed, the letter asksthat the Greek government be enabled “to introduce the substantive, far-reaching reforms that are needed to restore the living standards of millions of Greek citizens”. Also, no specific primary surplus targets are indicated, and reference is simply made to “appropriate” levels “that take into account the present economic situation”. As expected, the proposal is made to negotiate a new programme with the European Union and the IMF, although this is euphemistically called “Contract for Recovery and Growth”.
The fact that ministers are meeting in person, and that the meeting has been delayed, suggests that the divergences between Athens and the European authorities remain significant. This already emerged from the statement issued by the German finance minister, although a unanimous decision is notoriously required, and many other countries, in addition to Germany, strongly oppose an easing of the conditions. According to Reuters, however, Germany’s position has become even more inflexible, and now includes the request that the funds for the recapitalisation of banks be returned to the EFSF, and not used for other purposes. Therefore, the Greek government, with its back to the wall financially, will probably be forced today to lay even more bare the full failure of its ill-conceived negotiation strategy. Not only will it risk seeing the promises made in its electoral manifesto prove immediately insubstantial, but it may even fund itself having to face an additional price due to the punishment some countries are apparently now set on inflicting on Greece. On the other hand, an overly severe punishment would not seem to be in the interest of creditors, and could prove counterproductive to the ends of the future repayment of the loans issued.
The ECB’s January 22nd Monetary Policy Minutes highlight that the decision to introduce additional monetary stimulus was motivated by the fact the Council attached a considerable importance to recent market movements and to the likely price reversal that inaction would have triggered. Moreover the fact that the “quantitative” element of the Governing Council’s measures had clearly fallen short of initial expectations” also played a role. Last, but not least the Council agreed on the continuous deterioration in the outlook for price stability over the medium term. Yet the Minutes do not provide any details on votes distribution during the meeting on the policy options and instruments, but inly refer of a consensus, broad agreement and agreement. The ECB’s Minutes do not add much news on the technicalities of the purchases and on how the ECB will intervene in practice. The only extra detail seems to be that “some flexibility (relative to the thresholds implied
Quelle: BONDWorld.ch
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