Last call before disaster: Saturday afternoon. The economic balance of possible alternatives would suggest that Tsipras has no choice but to accept the plan proposed by creditors, but the domestic political situation makes the final outcome much more uncertain…
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– Negotiations with Greece are still stalling, and the country is now truly on the brink of the chasm. The creditors and the Greek government presented two different documents following the “technical” meetings, and the Finance minister meeting failed to break the standoff.
Dijsselbloem subsequently informed the European Council, and preannounced the “likely” calling of yet another extraordinary Eurogroup meeting on Saturday afternoon, to close a deal based on the document presented by creditors, or to discuss alternative plans.
Dijsselbloem did not openly refer to ultimatums to Greece, but the current platform is unlikely to be further changed; also, the Eurogroup’s official communiqué invites Greece to accept the platform proposed by creditors, while promising to analyse the Greek document in the meantime. No government leaders’ meeting will be held unless a deal is struck beforehand by the Ministers of Finance. It should be said that the IMF and the European Commission present a united front. The IMF has warned that Managing Director Lagarde would immediately inform the Board should Greece default on payment, without offering the grace period allowed by regulations.
– If an agreement is not reached by Sunday, the ECB will also have to change its course on ELA: this could already happen on Monday, or on Wednesday, following official notification to the IMF of Greece’s default on payment. Deposit withdrawals would probably then resume at an accelerated pace, after this week’s hiatus thanks to an apparent improvement of the prospect of striking a deal. At this point the Greek government could be forced to take pre-emptive action before Monday opening time, introducing controls on capital movements and restrictions on cash withdrawals, or even shutting down banks.
– This scenario would be disastrous, considering that the tourist season is now beginning, and would lead to think that Tsipras does not have much alternative to accepting the plan proposed by creditors. While it involves significant budget cuts, overcoming the liquidity crisis, getting rid of uncertainty and resuming government payment to supplier would partly offset the contractionary impact of austerity measures. Indeed, the economy is already being heavily affected by lingering uncertainty, by the liquidity crisis, and by the freeze on public administration payments. Public finances are close to collapse, and businesses are showing increasing reluctance in paying taxes and contributions. Data on state sector cash flows, published yesterday, outline a further deterioration in revenues: direct taxes are a hefty 1.2 billion euros short of target (-17.5%), and VAT revenues are 369 million less than planned (- 6.4%). Although the primary surplus is larger than planned, this is because more transfers are being cashed in from the EU (over 527 million), investments are at a standstill (+586 million), and payments to suppliers are being compressed (-1.67 billion in ordinary primary spending). Not bad for a government whose leader proclaimed in January his intention to launch a “fight against tax evasion and contraband, […] which will take determination and the political willingness to clash with oligarchic interests”.
– Although the terms of the question seem clear, the political situation the prime minister is facing in Greece is such that a refusal cannot be ruled out: an agreement along the lines prospected may not be approved without support from the opposition, as a large faction inside Syriza is in favour of negotiations falling through, and this scenario could result in a government crisis. Yesterday, the leader of ND, Antonis Samaras, prospected the formation of a public health government supported by ND, by the centre-left parties and by the more responsible factions of SYRIZA; however, this option could only take shape in the event of a split within SYRIZA, which may rather choose to call early elections – and possibly accelerate the process of destroying the capitalist economy in Greece, which it has already undertaken with rather good results.
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