MARKET BRIEFING – LONDON OPEN 12.06.2015
In a turn of events that frayed the nerves of the Greek negotiation team, the IMF representatives have left the Brussels debt talks and flown back to Washington.
According to the IMF spokesman Mr. Gerry Rice the gap between Greece and the creditors is large. Mr. Rice said that the two sides are “well away from an agreement”.
The same old areas still divide Greece from its creditors of Pension, Taxation and Public Sector reform. However there has been some movement on the primary budget surplus.
With Greece needing a cash injection for a new debt deal by the end of the month, an inability to reach a workable compromise agreement will put in jeopardy a payment to the IMF on June 30.
The administration of Alexis Tsipras is looking for debt relief in exchange for a relaxation of the Greek Governments anti austerity position. However the creditors and more particularly the Eurogroup have no wish to go soft on Greece as there is a fear that other countries within the Eurozone would justifiably ask for the very same favourable terms.
One can understand both points of view. The SYRIZA party when it took power earlier in the year inherited an economy that had a debt burden too large to ever be sustainable. There is a need to find a way to allow the Greek economy to grow but at the same time reduce the immediate debt burden that the country faces.
On their part the Europeans are fearful of SYRIZA and what it stands for. SYRIZA is an anti-establishment radical left coalition of interest groups that has fed on the concerns of the Greek public.
This tide of support for new political parties has also swept across Europe with the SNP and UKIP making significant gains at the expense of the traditional centrist parties such as the Conservatives, Labour and Liberal’s in the United Kingdom.
There is going to be a general elections later in the year in Spain. In this country a political movement similar to SYRIZA called Podemos has evolved from a pressure group that is made up by dissatisfied individuals to a political force that threatens to take power. It is therefore not in the interest of the Eurogroup countries to cut a deal with SYRIZA as this will only add more energy to the Podemos movement.
So why did IMF decide to pack up all their toys and fly back to the States? Was it a case of pure frustration pushing them to exit the meeting? Or is it a case that the IMF has decided to play its hand and by toughening its stance. Will this move push the Greek Premiers Tsipras and Varoufakis into a corner that forces them make the big compromise?
Or will fear of a backlash from an electorate that was promised so much but received so little and the rank and file of the SYRIZA party make Tsipras think twice about giving way to the creditor’s demands. Maybe the only solution is to call a referendum on the plan and let the people decide.
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