Greece: decisions ducked, yet again

The eurozone's finance ministers have opted yet again to delay making the hard decisions over Greece, says Andrew Van Sickle.

793-Greece-1200

Greeks take to the streets to battle austerity

"It's that time of the year again," says Larry Elliott in The Guardian. Greece is running out of cash; there are violent protests in Athens against austerity measures; and eurozone finance ministers are gathering in Brussels to discuss what to do about it. At their meeting on Monday they opted, not for the first time, to put off the difficult decisions.

Ministers will convene again by 24 May to judge whether Greece can meet the terms of its third bailout package agreed last year. In order to receive this bailout, which amounts to €86bn, Greece is supposed to commit to achieving a primary budget surplus (before interest payments) of 3.5% of GDP.

But this is creating a growing rift between the Europeans and the International Monetary Fund (IMF). The IMF thinks there is no way Greece can manage a 3.5% of GDP primary surplus, and suggests a 1.5% surplus and a write-off of some of Greece's debt instead. The overall debt pile is still worth 180% of GDP and the IMF thinks anything above 120% is unsustainable.

Without debt relief Greece is highly unlikely ever to get to grips with its borrowing. Long-term growth would help lower the debt-to-GDP ratio, but there is scant sign of it. The economy has shrunk by 25% in eight years, a fall equivalent to America's during the Great Depression, and appears to have contracted again in the first quarter of 2016.

But concessions of this kind are "politically indigestible" for eurozone governments, says The Economist. This means the most likely outcome, "as always, is a fudge: an agreement that gives creditors just enough confidence to release the next slug of cash, without putting Greece's finances on a sustainable footing". Yet Britain's referendum means the eurozone will have to "act with unaccustomed speed" in sorting this out, notes Elliott. Otherwise the issue will be "parked until after 23 June" and another "long, hot summer" will ensue.

Turkey: from bad to worse

The Turkish lira slumped by 4% against the dollar and stocks kept falling; they have lost around 8% this month. The ruling Justice and Development Party is set to appoint a new leader, which could pave the way for early elections.

Turkey should be doing its utmost to attract money. Its current account deficit has hit almost 5% of GDP, and it needs foreign capital to plug this gap with the rest of the world. What's more, much of the capital comes in the form of short-term flows such as foreign bank loans, which can turn tail quickly. Investors have been rattled by Erdogan's tendency to put pressure on the central bank to lower interest rates to boost growth, and his gradual abandonment of market liberalism. Turkish assets look set to keep falling.

Recommended

How the Covid-19 vaccine crisis is putting the EU in danger
EU Economy

How the Covid-19 vaccine crisis is putting the EU in danger

The botched coronavirus vaccine campaign will cause long-term harm to the EU's economy, says Matthew Lynn.
4 Apr 2021
How the vaccine wars will harm us all
Global Economy

How the vaccine wars will harm us all

Grabbing and hoarding vaccine supplies, or even manufacturing one’s own, might seem to make sense for a state in an emergency. But the damage done to …
27 Mar 2021
The European Central Bank fumbles its way towards yield curve control
EU Economy

The European Central Bank fumbles its way towards yield curve control

The EU’s economic recovery is faltering, but its bond yields keep rising. That makes things tricky for the European Central Bank, says John Stepek. He…
12 Mar 2021
Vexing vaccine delays hit drug firms
Biotech stocks

Vexing vaccine delays hit drug firms

AstraZeneca and Pfizer are being attacked by the EU over what it claims are delays in delivering the Covid vaccine.
28 Jan 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021