Greece on the brink again

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

Greece is “lagging very much behind delivering the requested details on reforms”, said Daniel Lenz of DZ Bank. And the eurozone won’t transfer  more money to Athens if it thinks the government is dragging its feet. With debt redemption payments coming up in a few days, the worry is that Greece “is running out of cash”.

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.