Greece Connects with Russia, Unveils €2 Billion Gas Deal; Germans in Rift with Eurozone; Did France Save Europe?

Yesterday, US treasury Secretary Jack Lew and International Monetary Fund managing director Christine Lagarde Pressured Eurozone Ministers to Grant Debt Relief to Greece.

Today, the Telegraph reports Germans in Rift with the Rest of Europe Over Debt Relief as Greek Reforms Ready 'Within Hours'.

Did France Save Europe?

The Telegraph has no details, just a catchy headline. The subtitle is interesting though.

The day France saved Europe?

Today has been a day for the French. In fact, most of this week has seen the French make concerted diplomatic efforts to ensure Greece gets a deal to stay in the eurozone. PM Valls, economy minister Macron, finance minister Sapin, and former finance minister Moscovici have all pitched in to various degrees to pull the European project back from the brink.

IMF Won't Give Debt Relief

I am curious as to how France could save anything by itself. Here are a couple more snips:

IMF's chief economist, Olivier Blanchard, delivered his final press conference at the head of the Fund's reseach department earlier today.

Mr Blanchard, who has advocated for debt relief for Greece, is pressed on why the IMF is not willing to take a haircut on the €22bn they have loaned to Greece, despite urging the rest of Europe to do so.

"The IMF has rules and in general we should question rules, but the rules are good ones," said the Frenchman.

Merkel Moves

Is Merkel making a move on Greek debt?<

Angela Merkel has been in Kosovo today. She said that a classic "haircut" on loans to Greece was out of the question. Ms Merkel faces a fight to pass through a new bail-out for Greece through her parliament, which as the ESM's largest creditor, holds a blocking minority vote.

But, Ms Merkel today did not take as hard a stance as we've heard from her finance ministry. She said:

"In 2012 we dealt with the issue of debt sustainability. We stretched out the maturities, we pushed back the repayment requirement for EFSF loans out to 2020. So we are not dealing with debt sustainability for the first time," Merkel said when asked about differences with the International Monetary Fund (IMF) over a debt writedown for Greece, report Reuters.

"I have said that a classic haircut is out of the question for me and that hasn't changed between yesterday and today."

The reference to a "classic" haircut suggests Berlin will not mandate any debt forgiveness which would immediately write-off a portion of Greece's €330bn debt mountain. But, her comments on extending maturities - or "reprofiling" in the jargon - are softer. As she says, the Germans have been here before and signed up to such relief measures only three years ago...

Rumor Mill

I am unconvinced of anything above. All I see is rumors and fear.

If there is "debt relief", loan extensions, and another bailout, then Germany will have to sign off on it.

Recall that another €60 billion or so is needed. Will the German parliament approve?

And if Greece gets relief, Portugal and Ireland will want a better deal too.

Russia the Concern

If there is a deal, it will be for one reason only: Fear of driving Greece into the hands of Russia.

Just today, Greek Energy Minister Unveils Plan for €2bn Gas Deal with Russia.

Greece has mapped out details of a planned landmark €2bn gas project with Russia in a move that could stir tensions with Brussels just as Athens is seeking a third bailout.

Panayotis Lafazanis, the firebrand leftist energy minister, presented preliminary plans for the project to Greek energy executives in Athens on Thursday in a defiant speech, vowing the government would not be pushed around by EU institutions.

The promised deal with Russia is a sharp rebuke to Brussels, which wants to reduce EU dependence on Gazprom and argues that southeastern Europe should diversify its supply by prioritising gas from Azerbaijan.

Opening his remarks with pugnacious references to the eurozone crisis, Mr Lafazanis said Greece was aiming to secure a deal with Brussels as quickly as possible. But he warned EU institutions that Athens was not about to roll over.

“Greece is no one’s hostage,” he said. “The Greek people’s No vote, and I am referring to all of the people, is not going to become a humiliating Yes. Greece is not, under threat of execution, ready to accept any fait accompli.”

No One's Hostage

If another deal is signed, Greece will remain a hostage. It's as clear as that.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com