World Week Ahead: Eyes on Greece after Tsipras’s delay tactics

Monday 8th June 2015

All eyes will be on Greece this week after Prime Minister Alexis Tsipras last week invoked an obscure International Monetary Fund rule from the 1970s to defer payment of 301 million euros of debt.

Last Thursday, a day before the payment had been due, Greece told the IMF it planned to bundle all four of its June debt payments into one, to be paid on June 30. It was only the second time the rule had been used after Zambia delayed a payment in the 1980s.

Greece has no more prospect of meeting a jumbo payment at the end of the month than last week’s single payment, meaning it is looming ever closer to default, but Tsipras has succeeded in winning more time, extending the standoff with the European Union and the IMF.

Tsipras plans to meet German Chancellor Angela Merkel and French President Francois Hollande on the sidelines of a summit in Brussels on June 10, Bloomberg reported, citing a Greek official. Both he and Finance Minister Yanis Varoufakis have rejected an offer from creditors that included measures such as cutting pension payments.

Having told media after talks last week that he felt Greece was closer to an agreement with creditors, Tsipras referred to their demands on Friday as “irrational” and “blackmailing”.

“Tsipras has his back against the wall,” Miranda Xafa, a former Greek representative to the IMF, told Bloomberg. “If a deal is not reached next week, in time for parliamentary approval of the deal, we are staring at disorderly default, deposit withdrawals, capital controls, and social unrest. I think a deal is in the making.”

Greek 10 year bonds ended last week at a yield of 11.427 percent. The Athex General Composite Share Price Index dropped almost 5 percent to the lowest in almost two months.

Merkel had hoped to reach a deal with the Greek government before the Group of Seven summit of leading industrialised nations which began yesterday in the Bavarian town of Schloss Elmau.

As host of the summit, Merkel has reportedly succeeded in ensuring the communique will include a long term aim to limit global warming to below two degrees. Merkel wants countries to commit to the Green Climate Fund, which is aiming for US$100 billion by 2020, the Guardian reported.

On Wall Street, the Standard & Poor’s 500 Index fell 0.1 percent to 2092.83 and the Dow Jones Industrial Average fell 0.3 percent to 17,849.46 on Friday, rounding out the second weekly decline for US stocks after stronger than expected payrolls data stoked speculation the Federal Reserve will raise interest rates as soon as September.

American companies added 280,000 jobs in May, beating estimates in the biggest gain for five months. The unemployment rate rose to 5.5 percent from 5.4 percent in April, as more people entered the work force.

The jobs report “shows that the underlying trend in the economy is continuing to improve,” Michelle Meyer, senior economist at Bank of America Merrill Lynch in New York, told Reuters. “This leaves the Fed on course to start hiking rates in September.”

Economic data this week includes China’s trade balance for May, expected to show a surplus of US$54.7 billion, and the final estimate of Japan’s first quarter GDP, both due on Monday.

US retail sales for May are due on Thursday and US producer prices for May and the University of Michigan's Consumer Survey of sentiment for June are due on Friday. Retail sales probably rose 1.3 percent in May after flat lining the previous month, on an increase in vehicle sales.

US consumer sentiment probably improved to a reading of 91.2 from 90.7 last month, according to a Bloomberg survey.

BusinessDesk.co.nz

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