Traders brace for turbulence after negotiations between Greece and creditors fail again 7.36am BST Good morning, and welcome to our rolling coverage of the Greek bailout negotiations and other key events across the world economy, the financial market and business.Fears of a Greek default are rising this morning after last-ditch talks between Athens and its creditors collapsed on Sunday night.“We made huge efforts to meet them halfway but they insisted on both pension cuts and the increase in VAT on restaurants and would not accept closing the gap even partially via administrative measures to reduce tax evasion, even though this was a central plank of our electoral programme. Moreover, they told us bluntly they had no mandate to discuss a compromise! So much for negotiating... Related: Greece's latest attempt to reach deal with creditors collapses Happy (early) Monday. Not much constructive commentary being distributed about state of Greek debt negotiations from either side. $EURUSDGreek talks break down, deadline approaching. Anyone else got a sense of déjà vu?On the one hand, the Greek government has to offer truly credible measures to reach the lower target budget surplus, and it has to show its commitment to the more limited set of reforms. We believe that even the lower new target cannot be credibly achieved without a comprehensive reform of the VAT – involving a widening of its base – and a further adjustment of pensions. Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone. Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP. We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners. We are open to alternative ways for designing both the VAT and the pension reforms, but these alternatives have to add up and deliver the required fiscal adjustment.On the other hand, the European creditors would have to agree to significant additional financing, and to debt relief sufficient to maintain debt sustainability. We believe that, under the existing proposal, debt relief can be achieved through a long rescheduling of debt payments at low interest rates. Any further decrease in the primary surplus target, now or later, would probably require, however, haircuts.The radical wing of Greece’s Syriza party is to table plans over coming days for an Icelandic-style default and a nationalisation of the Greek banking system.Syriza sources say measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma. Continue reading...
 |
| READ THE ORIGINAL POST AT www.theguardian.com |