Greece on the brink again

The provisional agreement for Greece's bailout is in danger of unravelling.

733-Greece-634

Yanis Varoufakis: little left in the kitty

Two issues occupied the markets this week. One was the strength of the US economy, which unsettled equity markets as it boosted the dollar and made a June interest-rate hike by the US Federal Reserve more likely. The other, as so often, was Greece.

While another round of talks between Greece and its European creditors began mid-week, there were fears that the provisional agreement made last month, whereby Greece's bailout would be extended for four months in return for a series of reforms, could unravel.

In the run-up to talks, one European finance minister unimpressed with Greek efforts to flesh out the reform proposals Greece produced last month said they should "stop wasting time". In response, the Greek government raised the prospect of a referendum or another election if its creditors proved unwilling to yield to its demands to renegotiate its debts.

What the commentators said

Yanis Varoufakis, the finance minister, has said that there is cash for salaries and pensions of public employees, but there seems to be little else in the kitty. Austria's Der Standard noted that further deposit flight in the past few days has meant that Greek banks can no longer finance some companies' day-to-day activities, such as importing goods. It may not be long before gaps start appearing on supermarket shelves.

Alexis Tsipras, the head of Greece's populist, anti-reform and anti-austerity Greek government, is "in a bind", said Hugo Dixon on breakingviews.com. He has found last month's deal "difficult to sell to hardliners" in his party, as they accuse him of abandoning many of his election pledges. He is likely to have to abandon pretty much all of them if he is to secure the deal.

Yet the turbulence resulting from a default and euro exit could cause another depression. Hence investors should "expect another fudge", said Nils Pratley in The Guardian. Greece may secure "a few minor tweaks" to the reform programme and "the charade that all is well with Greek debt", which of course is impossible to repay, will be maintained.

Recommended

Inflation is now at its highest since 1982 – is this the peak?
Inflation

Inflation is now at its highest since 1982 – is this the peak?

At 9%, UK inflation is at its highest for 40 years – and it’s not going anywhere soon, says John Stepek. That means you need to be much more active a…
18 May 2022
Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Interest-rate rises mean more pain for stocks
Stockmarkets

Interest-rate rises mean more pain for stocks

Interest rates are rising around the world as central banks try to get inflation under control. That’s hitting stockmarkets – and there is more pain t…
13 May 2022
Why Elon Musk's Twitter takeover could mark the end of the reign of the CEO
Stockmarkets

Why Elon Musk's Twitter takeover could mark the end of the reign of the CEO

The overlords of the corporate world have had their day, says Matthew Lynn. Long live the Technokings!
8 May 2022

Most Popular

Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Share tips of the week – 20 May
Share tips

Share tips of the week – 20 May

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 May 2022