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Today’s meeting of Eurozone finance ministers – the Eurogroup – will kick off a week of intense negotiations between Greece and its European partners. The next week could well decide if Greece finds a way to stay in the Eurozone. Open Europe’s Raoul Ruparel outlines what to expect and how likely a deal is.
11 February 2015
It’s been a noisy couple of days in the European press. Greek leaders have been trading barbs with their European (mostly German) counterparts and posturing to try and gain an upper hand in negotiations. Today they will finally all come face to face at the Eurogroup meeting.
Kathimerini had a detailed rundown of the plan which the new Greek government is likely to present to the Eurogroup. The key points are:
The initial signs aren’t good and there looks to be a large divide between the two sides to bridge.
Clearly, reaching an agreement will be incredibly tricky and the next week will be incredibly tough. But there is still scope for one to be reached. We would firstly suggest that Greece practices what it preaches. If it wants moratorium, a halt in play to negotiate, then it should also apply to Greece – this means no unilateral policy changes until the negotiations are concluded. No reversal of the minimum wage, labour market or other reforms.
If this can be done, then we would support an agreement to allow for a temporary increase in T-bill issuance and a reduction in this year’s primary surplus target.
Fundamentally though, there also has to be an idea of where the ‘bridge’ will go for Greece. As the analysis above suggests, it will be very difficult for Greece to find any serious debt relief. What Greece really needs over the next few years is an easier payment schedule to give it more time to reform and a bit more fiscal flexibility. But this depends on the ECB and IMF, not the Eurozone – as such it will be even tougher to find any room for manoeuvre.
Little progress is expected in today’s meeting of finance ministers and the big risk is that all the time is spent negotiating the bridge agreement with too little thought given to where said bridge will go.
For these reasons we believe Grexit is now more likely than in the fraught period of 2012. Back then we put the chances of Grexit at 25%. We now put them around 40%. A compromise is possible but it will require one side or the other to shift significantly. This still looks more likely to be Greece and Syriza but with strong backing from the Greek parliament and polls showing strong public support for their tough stance both sides positions are becoming increasingly entrenched.