France Hails Greek Aid Proposals as Germany Reserves Judgment
Comment of the Day

July 10 2015

Commentary by David Fuller

France Hails Greek Aid Proposals as Germany Reserves Judgment

France praised a package of measures proposed by Greece in return for a 53.5 billion-euro ($59.4 billion) bailout as the German government withheld judgment, saying it will wait for creditors to make a first assessment.

The responses allow the package of spending cuts, pension savings and tax increases to go to the next stage after it was submitted to creditor institutions late on Thursday. Euro-area officials will examine the proposals in Brussels on Friday, while the Greek parliament takes it up later the same day.

French President Francois Hollande said the reform proposals were “serious, credible” and demonstrated Greece’s determination to stay in the euro area. Dutch Finance Minister Jeroen Dijsselbloem, who will chair an emergency session of his euro-area counterparts in Brussels on Saturday, said creditors will give their judgment “probably later today.”

“If there’s broad support in Greece it gives more credibility,” he told reporters in The Hague. “But also then we have to see whether the proposals are good, if it gets Greece really out of the crisis.”

Finnish Finance Minister Alexander Stubb confirmed on Twitter that the Eurogroup would sit to consider the measure once creditors have had time to assess.

The euro and stocks surged on the prospect of a deal, ending a near-six-month standoff with Prime Minister Alexis Tsipras’s Syriza-led government since it was elected in January on an anti-austerity platform.

The package almost mirrored that from creditors on June 26, which was rejected by Greek voters in a July 5 referendum. The program request would last a number of years, so it would have to go beyond what was discussed two weeks ago with tougher conditions, a German government official said by phone, asking not be named because the negotiations are private.

If the so-called eurogroup of finance ministers can strike an agreement on Saturday, then leaders may not need to gather as planned on Sunday, according to a European Union official.

David Fuller's view

Arguably, Hollande wants an agreement which keeps Greece in the Eurozone even more than Merkel.  If Greece goes out, contagion within the Club Med countries will be feared, and France’s fringe parties will be emboldened.  The anti-German sentiment stirred by Syriza has angered the EU’s leading economy.  Germany also knows that a deal to keep Greece in the EU far from ensures that this struggling little country is out of trouble. 

Nevertheless, Europe and its allies will heave a collective sigh of relief if an agreement is successfully concluded this weekend. It would be a stretch to call it a triumph of diplomacy but at least it buys more time for Greece and the EU to address many of the problems which have impeded GDP growth for so long.  They will also have the benefit of Mario Draghi’s €60 billion of QE every month for the lengthy medium term.  That will help GDP growth but it will not address the longer-term problem of the single currency for very different economies. 

Assuming an agreement between Greece and the EU leaders is concluded, Europe’s stock markets should exceed their March highs before yearend.  Interestingly, most European indices are currently outperforming the DJIA and S&P 500 on the year to date, in US Dollar terms.  They are also less expensive.     

(See also: Markets Love the Greek Proposal – also, Greece Seeks $59.2 Billion Bailout as Tsipras Bows to Demands)

 

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