Greece: Tensions appear to be subsiding into the weekend - BBH

Research Team at BBH notes that the Greek tensions flared up this week, but appear to be subsiding into the weekend after Greece’s 10-year bond yield rose 57 bp this week.  

Key Quotes

“The confrontation revolves around the European finance ministers’ refusal to provide the debt relief that the IMF insists on, instead requiring Greece to pursue a 3.5% primary budget surplus as far as the eye can see.  The IMF and many economists do not think that is realistic.  In lieu of debt relief, the IMF insists that the only way make Greek debt sustainable is for deeper cuts in pensions.”  

“For its part, Greece appears to have overshot is primary budget surplus this year and the Prime Minister immediately spent it.  Parliament today approved an extra pension payment.  The sales tax in some of the islands particularly hard hit by the refugee crisis was also reduced.  This has annoyed some of the creditors, though France appears to be more sympathetic.”  

“The failure to secure debt relief won't end well for Tsipras.  To minimize electoral losses, there is some thought that Tsipras may be quick to use extra budget savings to prepare for early elections.  Tsipras’ Syriza is trailing in the polls, but the losses would arguably be larger over time.  Tsipras and Merkel will discuss these issues today.  Merkel, who is tacking right ahead of her fourth run at Chancellor next year, has little room to maneuver.”