Friday, May 22, 2015

Schaeuble Said to Cite Option of Greek Parallel Currency

Bloomberg
May 22, 2015

German Finance Minister Wolfgang Schaeuble raised the possibility that Greece may need a parallel currency alongside the euro if the country’s talks with creditors fail, people familiar with his views said.

Schaeuble mentioned the idea of parallel currencies at a recent meeting without endorsing it, according to two people who attended and asked not to be identified because the gathering was private. He also cited the example of Montenegro, which uses the euro but isn’t a member of the currency union, one person said.

The comments suggest that some in Germany are preparing for the worst amid a standoff with Greece that has dragged on since February. While Chancellor Angela Merkel and her finance minister say the goal is to keep Greece in the euro, Schaeuble has also said he wouldn’t rule out a Greek exit from the 19-nation currency.

Germany is “ready to take this brinkmanship very far,” with Schaeuble in the role of “attack dog,” Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington, said by phone. “The risks of contagion to other euro-area countries from a deterioration in Greece is very low.”

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The Only Three People Worth Listening to on Greece

Bloomberg
May 22, 2015

As Greece hurtles toward another denouement, figuring out who to listen to can be a challenge.

One minute Finance Minister Yanis Varoufakis is moving Greek bond yields by saying a deal is imminent. The next, his claims are being shot down by Germany’s Wolfgang Schaeuble. The result has pushed securities this way and that while giving few clues as to how the crisis will eventually play out.

The trick, say economists from ING Diba in Frankfurt to Berenberg Bank in London, is to focus on the people who exercise true power over the euro region’s bond and currency markets right now: Greek Prime Minister Alexis Tsipras, German Chancellor Angela Merkel and European Central Bank President Mario Draghi.

“You’ll have to take your guidance from these three,” ING Diba’s chief economist, Carsten Brzeski, said in a telephone interview. “While Merkel is keeping a low profile with her comments, she plays a crucial role.”

In charge of Europe’s economic powerhouse for a decade, Merkel has been around since the opening act of the Greek crisis and will be critical in deciding how it ends, juggling voter saturation at subsidizing Greece with the desire to avoid a breakup of the euro. Leading the opposite camp is Tsipras, playing hardball to end the austerity, humiliation and suffering of the Greeks. In the middle, the Italian-born central banker is doing whatever it takes to preserve the euro.

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Greece To Be Granted A Bailout Extension; Eurozone Lacks Credibility

by Stephen Pope

Forbes

May 21, 2015

Since the general election of January 25th when the Syriza led coalition government was elected it has has failed on six occasions to present to its international creditors a meaningful set of reforms that would have paved the way for the next tranche of bailout money to be advanced and so avoid a default.

The far left of centre government has known the timetable and yet has been totally shambolic in the propositions its has offered to the European Union. It has argued against austerity whilst expecting international sources of finance to simply let the struggling nation off the hook.

Syriza won the election by playing a populist card without any regard for the reality of life which is that he who pays the piper is allowed to call the tune. However, perhaps Greece has been the smarter party as right now, just when the debt and default clock is ticking ever louder it appears that the European parties Greece has to satisfy have themselves rolled over to have their tummies tickled.

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Thursday, May 21, 2015

How politics will seal the fate of Greece

by Philip Stephens

Financial Times

May 21, 2015

Forget debt ratios, fiscal balances, liquidity crunches and the rest. The EU and International Monetary Fund technicians negotiating with Athens are going through the motions. The Greek crisis was always as much about politics as economics. Now it is all about politics.

There are two theories of the Syriza government led by Alexis Tsipras. One presents a cast of bungling amateurs who have spent the past several months digging Greece into an ever deeper economic hole — all the while squandering the trust and goodwill of its eurozone partners. The other says the antics of Yanis Varoufakis, finance minister, are an elaborate political charade calculated to set Greece free from the shackles of merciless creditors.

The first hypothesis is the most popular. The preening and pirouetting, the interviews in glossy magazines, the undergraduate Marxism and love of the limelight — all point to a colossal failure on Mr Varoufakis’s part to grasp the depth of Greece’s plight or the sensitivities of its European partners. Along the way, tens of billions of dollars have drained from Greek banks as citizens stash their savings elsewhere.

The conspiracy theory, though, also has its adherents. They start with the assumption that no one could be quite as witless as Syriza has often seemed. Mr Tsipras’s government knew from the outset that it could not reconcile its domestic promises with Greece’s international obligations. The problem was that Greeks had voted at once for an end to austerity and to stay in the euro. A crisis had to be manufactured to show the government’s hand had been forced. By the Germans, of course.

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New Companies Try to Build a New Greece

by Yannis Palaiologos

Wall Street Journal

May 21, 2015

The sense of expectation in the small room was palpable. It was a mid-May morning and a group of 30 young Greeks, selected on the basis of academic achievement and an interview process, had gathered in the offices of Upstream Systems. They were there to learn what opportunities the company has to offer and what skills it is looking for.

Upstream embodies the virtues Greece needs in its companies if the country is to transcend its bankrupt economic model. Begun as a mobile-marketing company 15 years ago before the fertile union of mobile telephony and the Internet, over time Upstream evolved into a mobile-commerce company. These days, it sells goods and services via mobile phone—anything from gaming apps to microloans. Its revenue has shot up to €200 million ($222.6 million) from €35 million in six years. As much as 90% of that is earned in emerging markets, yet more than 75% of Upstream’s workforce is based in Greece.

Most Greek firms take little interest in employee satisfaction, fostering teamwork or giving their top people a sense of ownership. Youth tends to be kept down until it turns into age, and competitors are usually viewed as personal enemies whose downfall is more desirable than one’s own good performance.

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Why Greece’s Syriza party is not sticking to the script on an IMF deal

by Paul Mason

Channel 4

May 21, 2015

The leaked IMF document seen by Channel 4 News last weekend effectively signals a three-week endgame in the Greek debt stand-off.

The IMF thinks there is “no possibility” that Greece can meet €11bn worth of debt repayments due between June and the end of August. The Greek government is running out of cash.

Yanis Varoufakis, the finance minister, told Channel 4 News last night (see video below) that faced with the choice of paying €350m due on 5 June to the IMF on 5 June, or paying pensions and salaries, he would choose the latter.

Privately, those within the ruling far-left party Syriza who were once confident of reaching a compromise with lenders, are now alarmed. Euro exit plans drawn up by the far left of the party are being studied seriously by those previously dismissive of them; articles contemplating a debt default have begun to appear in the party’s daily paper Avgi.

In the script according to the eurozone, the expected ending is: Syriza splits; finance minister Varoufakis makes good his pledge not to sign a surrender and resigns. A government of the centre-left forms, with Alexis Tsipras now allied to the centrist Potami party and with tacit support from a liberal wing of the New Democracy party. Debt relief happens, but on the terms dictated by the lenders, and Syriza survives to complete its mutation into a centre-left social democratic party.

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Schaeuble: Greek optimism about imminent deal not justified

Reuters
May 21, 2015

German Finance Minister Wolfgang Schaeuble has told Reuters the Greek government's optimism about clinching a cash-for-reforms deal with its lenders within days is not backed up by the negotiations, and he cannot rule out Greece becoming insolvent.

Greek Finance Minister Yanis Varoufakis said on Monday that an agreement could be reached within a week.

But Schaeuble said reports from the International Monetary Fund, the European Central Bank and the European Commission on their negotiations with Athens suggested talks were progressing "very hesitantly".

"What I know from discussions with the three institutions does not back up the optimism arising from announcements from Athens," Schaeuble said in an interview on Wednesday.

"There is not yet any substance to the mere announcement that we are closer to an agreement. This is still within the realms of atmosphere."

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Investors eye consequences of a Greek default

Financial Times
May 20, 2015

With Greece fast running out of cash, investors and policy makers have begun contemplating the possibility of a default and its consequences.

The question they are asking is whether it is possible to keep Athens in the eurozone even if it failed to repay some of its creditors, thereby sparing the global economy renewed uncertainty.

“Our base-case scenario remains that Greece and its international partners will reach an agreement,” wrote Reinhard Cluse, an economist at UBS, in a research note. “Nevertheless . . . the risk of failure and eventual Grexit [Greek exit from the currency bloc] should not be underestimated”.

The cash position of the Greek government is extremely murky, making it hard to assess when exactly Athens might be forced to renege on its obligations.

Silvia Merler, an economist at European think-tank Bruegel, has calculated that the government is running a better than expected primary surplus. However, this is largely the result of a severe squeeze on public spending, which is partly due to delayed supplier payments.

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Greek Pensions Said to Be in Creditor Crosshairs

Bloomberg
May 20, 2015

Greece’s creditors are making pension reforms a top priority, leaving the door open to compromises on other issues like the country’s minimum wage proposals.

Greek negotiators are meeting Wednesday with the so-called Brussels Group as efforts continue to reach a deal by month-end, according to two officials close to the talks.

If Prime Minister Alexis Tsipras can offer sufficient pledges to overhaul Greece’s retirement program -- one of the nation’s biggest hurdles to qualifying for International Monetary Fund aid -- creditors might offer leniency on their demands to restrict increases to the minimum wage, according to another official, who asked not to be identified because the talks are private.

“The pension system looks unsustainable and needs reform,” said Guntram Wolff, director of the Brussels-based Bruegel group. “If you don’t reform it and want debt relief, you’re essentially asking your partners to fund an unsustainable pension system.”

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Wednesday, May 20, 2015

Greece says it will default in June without aid from lenders

Reuters
May 20, 2015

Greece will not be able to make a payment to the International Monetary Fund due on June 5 unless foreign lenders provide more aid, a senior ruling party lawmaker said on Wednesday, the latest warning from Athens that it is on the verge of default.

Prime Minister Alexis Tsipras's leftist government says it hopes to reach a cash-for-reforms deal in days, although European Union and IMF lenders are more pessimistic and say talks are moving too slowly for that.

Payments to the IMF totaling about 1.5 billion euros ($1.7 billion) fall due next month, starting with a 300 million euro payment on June 5.

"Now is the moment that negotiations are coming to a head. Now is the moment of truth, on June 5," Nikos Filis, spokesman for the ruling Syriza party's lawmakers, told ANT1 television.

"If there is no deal by then that will address the current funding problem, they won't get any money," he said.

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A Finance Minister Fit for a Greek Tragedy?

by Suzy Hansen

New York Times

May 24, 2015

Yanis Varoufakis knows when he will go. “I’m not going to humiliate myself, and I’m not going to become compromised in terms of principles and in terms of logic,” he told me in early May. The Greek finance minister had just returned to Athens from a hopscotch tour of European capitals, during which he warned his fellow European leaders that they faced a Continental crisis: If they didn’t lend money to his ailing country soon, Greece might end up forced to leave the eurozone. And yet Greece wouldn’t accept many of the conditions they were demanding in return. He sounded angry. “I’ll be damned if I will accept another package of economic policies that perpetuate this same crisis. This is not what I was elected for.” He would resign, he said, rather than push the Greek people deeper into economic despair: “It’s not good for Europe, and it’s not good for Greece.”

Varoufakis has been Greece’s finance minister for only four months, but the story of how he has thrown Europe into turmoil is one many years in the making. After Greece joined the European Union’s monetary union in 2001, the tiny country of 10 million was flooded with money from elsewhere on the Continent. Over the course of the next decade, Greek leaders, whose sclerotic and corrupt economy had long been rife with patronage and tax evasion, borrowed billions from imprudent European banks and then lied to E.U. officials about its mounting debts. When the financial crisis finally rolled into Greece in 2009 and 2010, the country was an estimated $430 billion in debt, a staggering figure that imperiled the economic health of its near and distant neighbors — indeed, all of Europe. The European Commission, International Monetary Fund and the European Central Bank (often referred to as the troika) agreed to bail out the sinking economy by loaning it $146 billion. In return, as Athenians rioted in the streets in protest, the government promised the troika it would reduce state spending by slashing pensions and wages, eliminating jobs and raising taxes, an approach to debt reduction known as “austerity.”

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German Finance Minister Schäuble Doesn’t Rule Out Greek Default

Wall Street Journal
May 20, 2015

Germany’s finance minister said he couldn’t rule out a Greek default, a stance that will add pressure on Athens as negotiations over much-needed financing enter their final stretch.

Asked whether he would repeat an assurance he gave in late 2012 that Greece wouldn’t default, Wolfgang Schäuble told The Wall Street Journal and French daily Les Echos that “I would have to think very hard before repeating this in the current situation.”

“The sovereign, democratic decision of the Greek people has left us in a very different situation,” he said, referring to the January election that delivered a radical-left government that has vowed to reverse five years of creditor-mandated austerity and painful economic overhauls.

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Greece proposes imposing bank transaction tax

Reuters
May 20, 2015

Greece has proposed imposing a levy on certain bank transactions to raise revenues to meet fiscal targets during negotiations with European Union and the International Monetary Fund lenders, two sources close to the talks said on Wednesday.

"There is no final decision yet but it is under discussion," a government official said. "The proposal is certainly not about all banking transactions."

Another source close to the talks said that the discussion was still on a "preliminary level".

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The ECB's in a Tight Spot Over Greece

Bloomberg
May 20, 2015

European Central Bank policy makers will discuss Greek bank aid on Wednesday in a chore that is getting more uncomfortable every week.

The Governing Council is due to meet in Frankfurt to debate the Greek central bank’s request for an increase of 1.1 billion euros ($1.2 billion) in the emergency funding it can offer lenders, people familiar with the matter said. As Greece veers toward default, ECB officials are aware that their response could worsen the political crisis just as bailout talks show signs of progress.

ECB President Mario Draghi has repeatedly said politicians rather than unelected central bankers must decide on Greece’s future, and council decisions will be based on rules such as the solvency of its banks and a prohibition on state financing. European leaders will have their next chance at a summit on Thursday in Riga, Latvia.

“It’s very simple: the ECB doesn’t want to be the one that pulls the plug on Greece when political negotiations are still ongoing,” said Marco Valli, an economist at UniCredit SpA in Milan. “As long as there is the chance that Greece will remain solvent, that it might receive further European Union aid, then ELA can be given. Should this possibility disappear, then it will have to stop.”

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Tuesday, May 19, 2015

Merkel Said to Plan Address for Greece If Deal Reached

Bloomberg
May 19, 2015

German Chancellor Angela Merkel is considering delivering a keynote address to make the case for aiding Greece as she faces down a potential revolt from as much as a third of her bloc’s lawmakers.

Merkel would hold the speech after Greece and its creditors agree on a deal with conditions she deems strong enough to sell to parliament and the German public, according to two government officials. She would argue that a Greek exit from the euro area would risk causing geopolitical instability in the region, said the officials, who asked not to be identified because the discussions are private.

Merkel’s desire to keep Greece in the euro is fraught with political risk given the level of exasperation in Germany with Prime Minister Alexis Tsipras after four months of brinkmanship. While some German policy makers have hardened their stance against helping Greece, others are hinting at more flexibility to avert a financial collapse.

“Should we seriously go and prescribe in detail what the Greeks are allowed to spend and what revenue they can have?” Deputy Finance Minister Thomas Steffen said in an interview. “I say no. It’s the rough framework that has to be clear.

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Greece's True Deadline May be May 29

by Mark Gilbert

Bloomberg

May 19, 2015

When does Greece finally run out of money? At what point will depositors have drawn so much cash out of the Greek financial system that its banks are essentially insolvent? And how long before Greece exhausts its bag of tricks, such as drawing down account balances at the International Monetary Fund to pay money owed to the International Monetary Fund? Here's a potential answer.

Greek banks have been increasingly reliant on emergency liquidity assistance from the European Central Bank since February. And because Greece's banks only have sufficient collateral to cover 95 billion euros ($106 billion) of ELA funding, extrapolating the growth in that reliance on a chart delivers a deadline -- May 29:


Of course, there's a huge caveat to this kind of extrapolation. The pace of Greece's appetite for ECB cash might decelerate, so the upper limit might not be reached so quickly. Or the ECB may decide it needs to be more generous in how it treats the collateral against which it's lending, which could raise the threshold. Or Greece's creditors might decide to release a portion of the funds the government in Athens is seeking, throwing it a lifeline in exchange for implementing at least some economic reforms.

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Monday, May 18, 2015

What to make of the new “Juncker Plan” for Greece?

by Peter Spiegel

Financial Times

May 18, 2015

The Greek daily To Vima has a nice scoop this afternoon about a document they’ve been leaked purporting to be a new proposal from Jean-Claude Juncker, the president of the European Commission, on how to break the standoff between Athens and its creditors.

According to the To Vima report, the plan envisions a deal with Greece that completely cuts out the International Monetary Fund and releases about €5bn in aid to Athens from three different sources: the €1.8bn remaining in the EU’s portion of the current bailout; €1.9bn in profits from Greek bonds purchased by the European Central Bank back in 2010; and another €1.3bn or so in additional Greek bond profits the ECB will get in July.

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Sunday, May 17, 2015

Greece Remains Defiant as It Seeks Creditor Deal This Week

Bloomberg
May 17, 2015

Greece’s government said it won’t back down on election pledges to end austerity even while seeking to agree on a deal with creditors as soon as this week to unblock financing and avert a default.

“We’re striving for a mutually beneficial agreement by Friday,” Nikos Filis, spokesman for the parliamentary group of Prime Minister Alexis Tsipras’s Syriza party, said Sunday in comments broadcast on Mega TV. “Our mandate from the Greek people is to reach an agreement where we stay in the euro area without harsh austerity measures,” he said, adding that “tough negotiations” will take place before a summit meeting of European Union leaders in Riga, Latvia, on May 21-22.

Tsipras’s so-called red lines include no further cuts to wages and pensions. More than 110 days of talks between Greece and its creditors have failed to produce an agreement to unlock additional aid from a 240 billion-euro ($275 billion) bailout. The standoff has triggered a liquidity squeeze, pulling the country back into a recession and renewing doubts over Greece’s future in the euro area.

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Saturday, May 16, 2015

Greek Prime Minister Rejects Further Austerity or Labor Changes

by Niki Kitsantonis

New York Times

May 15, 2015

Greece’s prime minister, Alexis Tsipras, said in a speech on Friday that his government wanted a deal with the country’s creditors but that it would not enforce additional austerity measures, like further pension cuts.

Mr. Tsipras said Greece wanted a “unified agreement” that would restructure its huge debt, a thorny issue not on the agenda of the current talks.

Weeks of difficult negotiations have yielded some common ground, Mr. Tsipras told an audience of entrepreneurs and politicians at a conference in Athens sponsored by The Economist. Convergence on fiscal targets, “marginal changes” to value-added tax rates and an improvement to the tax collection system “make us optimistic that we are very close to an agreement,” he said.

But he said the two sides remained divided on the contentious issues of overhauling the labor sector and the pension system.

“I want to reassure the Greek people that there is no possibility or chance that the Greek government will back down on pension and labor issues,” he said, adding that additional pension cuts “cannot be accepted.”

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Friday, May 15, 2015

The Tsipras recession

by Holger Schmieding

Intelligent News

May 15, 2015

Unfortunately, this is one of the few things which Greece's double populist coalition has done so far. Since December, the risk has become clearer and clearer that the Samaras recovery of 2014 could give way to a Tsipras recession if a Syriza-led government were to insist on its impossible campaign promises. The GDP data for Q1 (-0.2% qoq) on Wednesday confirm that Greece has indeed fallen back into recession.

That the left-right populists in Athens have annoyed Greece's international creditors is the smaller of the problems. Much worse is that the government has shattered trust at home.Capital flight of some €55bn from December to March, equivalent to some 30% of Greek annual GDP, is crippling the economy while a drain of deposits (€23bn in the last four months) has partly paralysed the banking system, putting it on ECB life support.

Assessing the damage

Nothing brings out the damage more clearly than the comparison to Spain. Until late November, that is until the political risk in Athens came to the fore, Greece and Spain were roughly on the same recovery track with annualised GDP growth of around 2.3% for the first three quarters of 2014. Strong business confidence last autumn and a 1.6% yoy rebound in employment from the very depressed crisis levels pointed to even better Greek news for 2015 to come.

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Thursday, May 14, 2015

Why Syriza Will Blink

by Anatole Kaletsky

Project Syndicate

May 14, 2015

Once again, Greece seems to have slipped the financial noose. By drawing on its holdings in an International Monetary Fund reserve account, it was able to repay €750 million ($851 million) – ironically to the IMF itself – just as the payment was falling due.

This brinkmanship is no accident. Since coming to power in January, the Greek government, led by Prime Minister Alexis Tsipras’s Syriza party, has believed that the threat of default – and thus of a financial crisis that might break up the euro – provides negotiating leverage to offset Greece’s lack of economic and political power. Months later, Tsipras and his finance minister, Yanis Varoufakis, an academic expert in game theory, still seem committed to this view, despite the lack of any evidence to support it.

But their calculation is based on a false premise. Tsipras and Varoufakis assume that a default would force Europe to choose between just two alternatives: expel Greece from the eurozone or offer it unconditional debt relief. But the European authorities have a third option in the event of a Greek default. Instead of forcing a “Grexit,” the EU could trap Greece inside the eurozone and starve it of money, then simply sit back and watch the Tsipras government’s domestic political support collapse.

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BRICS Bank Invite to Greece Has Jim O’Neill Thinking It’s a Joke

Bloomberg
May 14, 2015

Having scratched together the 750 million euros ($845 million) it owes the International Monetary Fund and with a few weeks of cash left in its accounts, Greece is now being invited to join a club with a membership fee running into the billions.

The disclosure this week from Athens that Russia wants to make Greece the sixth member of the BRICS bank sounded like nothing more than a late April Fool’s joke to Jim O’Neill. He’s the former Goldman Sachs Group Inc. economist who in 2001 coined the term BRIC -- Brazil, Russia, India and China. South Africa was subsequently invited to join by the others.

Last year they set up a development bank to rival the IMF. It will have authorized capital of $100 billion with each founding member contributing $10 billion.

So what gives? Certainly Greece, whose economy has shrunk by about a quarter as it became of ward of the euro zone, doesn’t exactly meet the vision laid out by O’Neill to highlight the growing economic weight of developing nations.

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Tuesday, May 12, 2015

Greek PM says time for action from lenders, IMF payment scrapes by

Reuters
May 12, 2015

Greek Prime Minister Alexis Tsipras on Tuesday called on lenders to break an impasse in cash-for-reform talks after Athens had to resort to a temporary expedient to make a crucial payment to the IMF.

Greek officials told Reuters they had emptied an International Monetary Fund holding account to repay 750 million euros to the global lender on Monday, avoiding default but underscoring the dire state of the country's finances.

At his second cabinet meeting in three days, Tsipras told ministers Athens was sticking to its "red lines" and that it was time to see lenders meet Greece halfway, according to a government official. The official said Greece is still expecting a deal by the end of the month.

"The Greek side has so far fully met everything the Feb. 20 Eurogroup decision foresaw. It has taken as many steps as possible towards the European partners' side," the official quoted Tsipras as telling his cabinet. "It's now our partners' turn to make the necessary steps in order for them to prove in practice their respect towards the democratic popular mandate."

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EU Said to Consider Plan for Greece in Event of Euro Exit

Bloomberg
May 12, 2015

Euro-area governments are considering putting together an aid package for Greece to cushion the country’s economy if it was forced out of the euro, according to two people familiar with the discussions.

The Greek government doesn’t expect to need that help. Prime Minister Alexis Tsipras says he’s not considering leaving the currency bloc and is focused on getting the aid he needs to avoid a default.

Even so, European officials are considering mechanisms to ring fence Greece both politically and economically in the event of a euro breakup, in order to shield the rest of the currency bloc from the fallout, one of the people said.

“There is always a plan B,” Filippo Taddei, an economic adviser to Italian Prime Minister Matteo Renzi, said in an interview in Rome on Tuesday, without referring to the aid package specifically. “But you have to ask yourself who has the ability to step in, in that event. And I think if you start making up a list you realize very quickly that that list is very short.”

While euro-area finance ministers welcomed the progress Greece has made toward qualifying for more financial aid at a meeting in Brussels on Monday, policy makers are still concerned Tsipras may not be prepared to swallow the concessions necessary for a disbursement.

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Syriza must let markets and meritocracy rule

by Yannis Palaiologos

Financial Times

May 12, 2015

The Syriza-led government caused a stir in Greece last month when it made Leonidas Bobolas, a prominent businessman, pay €1.8m in back taxes to avoid being formally charged with tax evasion.

Mr Bobolas is the chief executive of Ellaktor, the country’s leading construction company, and his family is among the most powerful operators in the media sector. People like him have long been considered by the average Greek to be beyond the reach of the tax authorities, so his arrest became the talk of Athens . But there are reasons to doubt this blow for justice is the start of a successful campaign against the clientelism at the heart of the Greek malaise.

A succession of leaders, especially since 2009, has rightly indicted the ruinous effect of the clientelist mentality on the nation’s public finances and its competitiveness — but they were only paying lip service to the need for reform. There was little will to tackle the structures of favouritism on which the political system and its clients thrived.

Voters hoped Syriza — new to governing and so comparatively free of corrupt entanglements — would be more likely to cut the ties binding politics to rent-seeking special interests. This was always a false hope, as the leftwing government’s underwhelming record shows. Syriza cannot be the battering ram that crushes the ramparts of clientelism for the simple reason that it refuses to recognise vital aspects of it. For Prime Minister Alexis Tsipras, the problem lies exclusively in the collusion (or diaploki ) between the old governing parties and powerful families with significant media holdings. Their networks were chiefly tools to influence politics in order to entrench their position in other sectors, in particular construction and energy.

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Greece taps IMF reserves to pay €750m debt

Financial Times
May 12, 2015

Greece took the unusual step of raiding its holdings of the International Monetary Fund’s de facto currency to make a €750m payment to the fund on Tuesday, in another sign of the country’s increasingly desperate cash crunch.

The €750m payment to the IMF on Tuesday was the biggest Athens has made to the fund so far this year. But it is just the first in a series of major payments to the IMF and the European Central Bank due in the coming months that have raised the spectre of a Greek default and exit from the eurozone.

Athens drew €650m from its holdings of the IMF’s Special Drawing Rights to make the loan payment and also give it room to disburse nearly €1bn on Wednesday to pay public sector salaries.

A Greek central bank official said Tuesday’s withdrawal from its SDR holdings was unusual but not unprecedented. He also said there was no specific deadline for replenishing the account but that Greece would be expected to gradually replace the funds over the coming months.

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Greece's Payment Plan Is a Shell Game

by Mark Gilbert

Bloomberg

May 12, 2015

"I love deadlines; I like the whooshing sound they make as they go by," wrote Douglas Adams, author of the "Hitchhikers Guide to the Galaxy." He'd have found plenty to admire in Athens in the past few months, where the whooshing has become deafening. Greece's international creditors are probably less pleased by the sound -- although judging from the desperate method the country used to meet today's debt payment there may not be many deadlines left to miss.

Greece has to pay the International Monetary Fund about 750 million euros ($847 million) today. To avoid a default, the nation pulled out 650 million of reserves -- from its account at the IMF, according to Greece's Kathimerini newspaper. It's the equivalent of writing a check to yourself to clear your bank overdraft; and the deadline it sets for Greece may turn out to be the most serious one yet for the nation.

Greece has to replenish its IMF funds within a month, Kathimerini says. With the IMF already struggling with its own rules that forbid it from throwing good money after bad by lending to governments that aren't at least on a path to fiscal rectitude, Greece may have done nothing better than exchange one kind of default for another. The hackneyed phrase "kicking the can down the road" has never seemed more apt.

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Greece Completes Latest IMF Loan Repayment

by Stelios Bouras

Wall Street Journal

May 12, 2015

Greece on Tuesday completed a €750 million ($836.7 million) loan repayment to the International Monetary Fund, according to officials from the finance ministry and the Bank of Greece.

The Bank of Greece official said the money was paid from an emergency account held by the central bank after two meetings last week between Governor Yannis Stournaras, Deputy Prime Minister Giannis Dragasakis and Deputy Foreign Minister Euclid Tsakalotos, who manages Greece’s talks with international creditors over its bailout.

“In order for money to be taken from this account, the IMF had to approve it. It was given,” the Bank of Greece official said.

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Greece Inches Closer to an Accident

by Mohamed A. El-Erian

Bloomberg

May 12, 2015

An immediate crisis has been averted once again in the Greek drama. At least that is how most media outlets will interpret Greece's approval of a scheduled 750 million euros ($836 million) debt payment to the International Monetary Fund this week. The decision was made as euro group finance ministers expressed some satisfaction at the greater seriousness shown by the Greek government and urged it to do more, and quickly.

This interpretation is strictly correct; it is also potentially misleading.

The deal does buy time for Greece and Europe. But it doesn’t get either side much closer to resolving a crisis that is causing considerable human tragedy in Greece and eroding the credibility of European institutions. At best, it is another attempt to prolong the muddling through, despite the escalating costs and steadily diminishing effectiveness. As a result, conditions on the ground continue to slowly slip out of the control of Greek and European policy makers.

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Germany floats Greek referendum on reform, others doubt timing

Reuters
May 12, 2015

EU paymaster Germany suggested on Monday that Greece might need a referendum to approve painful economic reforms on which its creditors are insisting, but Athens said it had no such plan for now and others warned a vote could delay vital aid.

Greece calmed immediate fears of a default by making a crucial 750 million euro payment to the International Monetary Fund a day early. But Finance Minister Yanis Varoufakis said the liquidity situation was "terribly urgent" and a deal to release further funds was needed in the next couple of weeks.

Euro zone finance ministers welcomed some progress in slow-moving talks on a cash-for-reform deal between Athens and the IMF, the European Commission and the European Central Bank but said more work was needed to each a deal.

"We acknowledged that more time and effort are needed to bridge the gaps on the remaining open issues," they said in a short statement after spending barely an hour on a progress review on the negotiations behind held among senior officials.

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Monday, May 11, 2015

Greece Dodges Economic Bullet With Progress Toward Deal

Bloomberg
May 11, 2015

Greece handed the European Central Bank an excuse to maintain the life support for its financial system by persuading its skeptical German-led creditors it’s serious about delivering the policies needed to escape a default.

Less than three weeks after a Greek aid meeting broke up in taunts and acrimony, Finance Minister Yanis Varoufakis assured euro-area governments that his country is aiming to strike a bargain to win the final installments of its 240 billion-euro ($268 billion) aid program.

“We are making faster progress,” Dutch Finance Minister Jeroen Dijsselbloem told reporters in Brussels on Monday after leading a meeting of euro ministers. “I’m not satisfied but just a bit more optimistic.”

Pressure on the two sides had intensified with the ECB due to reassess the emergency liquidity lines keeping the Greek banking system in business on Wednesday. Although some central bankers are pushing for stricter terms, it’s now unlikely that policy makers will decide to restrict funding this week, according to two European officials.

With global bond markets sliding, the yield on Greece’s notes due 2017 rose 17 basis points to 21.4 percent at 12:04 p.m. local time. The Athens benchmark stock index was little changed.

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Apple Could Make Money by Bailing Out Greece

by Leonid Bershidsky

Bloomberg

May 11, 2015

That Apple should buy Greece with all the useless cash it has on hand is just a joke that won't go away. Yet it's true that, if big American corporations and European politicians had any imagination, they could probably engineer a bailout for the nearly bankrupt country on terms that would benefit everyone.

Back in 2012, an investor attending Apple's general meeting asked Tim Cook, the chief executive officer, if he'd ever considered using the company's growing cash stash -- $97.6 billion at that point -- to acquire Greece. "We've looked into many things," but not that, Cook replied. Of course, entire countries can't be bought -- not even in novels, it seems. In Iain Banks's "The Business," such a deal fell through, even though the acquisition target was an obscure Himalayan monarchy, not an old democracy like Greece.

So everyone had a laugh and moved on. Things briefly got better for Greece when it received the biggest bailout in history, and private creditors agreed to a haircut. But its economy still failed to grow, and the country's debt burden, at 175 percent of economic output, remained unsustainable. Apple, in the meantime, more than doubled its hoard, which now amounts $194 billion in cash and equivalents. The company has been paying generous dividends and buying back stock, but the cash pile keeps growing. There's no way to invest it all. For years, Cook has been talking about mind-blowing products his company has in the pipeline, but he's only managed to come up with incremental improvements to existing products, an average streaming music service and an overpriced smartwatch, and these haven't required much capital. Unless Apple starts building cars -- or perhaps spaceships -- it will keep accumulating cash.

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Germany Shows Openness Toward Greek Referendum on Bailout Program

Wall Street Journal
May 11, 2015

A referendum in Greece on the country’s international bailout program may be a good idea, Germany’s finance minister said Monday.

“It may even be a right measure to ask the Greek people to decide whether it’s ready to accept what is necessary or whether it wants the alternative,” said Wolfgang Schäuble said as he arrived for a meeting with his eurozone counterparts in Brussels.

Calling a referendum on the bailout would be a risky move for both the government in Athens and the rest of the eurozone, adding further unpredictability to a tense situation. A negative vote would likely herald Greece’s exit from the eurozone.

Several of the overhaul measures demanded by Greece’s international creditors—including pension cuts and new laws that make it easier to lay off workers—clash with the promises the new left-wing government made when it was elected in January.

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Greece seemingly has no Plan A or Plan B on debt

by Hugo Dixon

Reuters

May 11, 2015

Strategy is a word with Greek roots. But, sadly the current government led by Alexis Tsipras doesn’t seem to have a strategy for extricating the country from its parlous state.

Its government lacks a credible plan for reaching agreement with its euro zone creditors and the International Monetary Fund. It doesn’t seem to have a thought-out fallback plan of how to default while containing the damage either.

Greek financial markets have perked up in the past few weeks, largely because Yanis Varoufakis, the combative finance minister, has been sidelined from discussions with the country’s creditors.

The new composition of the negotiating team has, indeed, led to more productive talks. But there is still a mountain to climb and little to no chance of a deal when euro zone finance ministers meet on May 11.

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I.M.F. and Central Bank Loom Large Over Greece’s Debt Talks

New York Times
May 10, 2015

Greek leaders have fought fiercely in recent months with politicians from other European countries over relief on Greece’s vast debt load.

Yet the power to decide the fate of Greece lies not just in the hands of these national governments, but also with unelected officials at two powerful institutions: the European Central Bank and the International Monetary Fund. Each is a creditor to Greece, and each is expecting the country to repay it billions of dollars of debt in the coming weeks.

The influence of the E.C.B. and the I.M.F. will be felt behind the scenes on Monday, when finance ministers from Greece and other European nations meet in their latest effort to break an impasse that is paralyzing the Greek economy and frightening global markets.

Greece is expected to repay 750 million euros, or $840 million, to the monetary fund on Tuesday as scheduled. For the rest of the year, however, its debt repayments to the fund and the central bank total nearly €12 billion.

The politicians at the meeting are racing against the clock to forge a deal that would give Greece enough money to repay both this summer.

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IMF Works With Greece’s Neighbors to Contain Default Risks

Wall Street Journal
May 10, 2015

The International Monetary Fund is working with national authorities in southeastern Europe on contingency plans for a Greek default, a senior fund official said—a rare public admission that regulators are preparing for the potential failure to agree on continued aid for Athens.

Greek banks are big players in some of its neighbors’ financial systems. In Bulgaria, subsidiaries of National Bank of Greece SA, Alpha Bank SA, Piraeus Bank SA and Eurobank Ergasias SA own around 22% of banking assets, roughly the same as Greek banks own in Macedonia. Greek banks are also active in Romania, Albania and Serbia.

“We are in a dialogue with all of these countries,” said Jörg Decressin, deputy director of the IMF’s Europe department. “We are talking with them about the contingency plans they have, what measures they can take.”

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Sunday, May 10, 2015

Merkel Pressed to Give Up on Greece as Germans Urge Strong Euro

Bloomberg
May 10, 2015

German Chancellor Angela Merkel is coming under growing pressure from within the ranks of her own party bloc to give up on Greece for the sake of the euro.

Members of Merkel’s Christian Democratic bloc are openly challenging her stance of keeping Europe’s most-indebted country in the 19-nation currency region. Even some officials in the Finance Ministry are leaning toward the conclusion that the euro area would be better off without Greece, two people familiar with the matter said.

“The euro would be strengthened if Greece left,” Alexander Radwan, a Merkel-affiliated lawmaker who voted for granting Greece a temporary extension of its bailout in February, said in an interview. “The other countries could then move closer together and apply the rules more strictly.”

With European finance ministers due to resume talks on Greece on Monday, hardening sentiment in Germany risks sending mixed signals to investors as Prime Minister Alexis Tsipras’s government attempts to reach a deal with creditors.

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Greek leader faces revolt by party hardliners as debt showdown looms

by Helena Smith

The Observer

May 10, 2015

The epic struggle to keep Greece solvent and in the eurozone intensified on Saturday night amid signs of a looming crisis within the anti-austerity government that took Europe ablaze barely three months ago.

As prime minister Alexis Tsipras scrambles to secure a financial lifeline to keep the debt-stricken country afloat, hardliners in his radical left Syriza party have also ratcheted up the pressure. In a make-or-break week of debt repayments, the politician once seen as the harbinger of Europe’s anti-establishment movement has found himself where no other leader would want to be: caught between exasperated creditors abroad and enraged diehards at home.

With government coffers almost at nil and Athens facing a monumental €750m (£543m) loan instalment to the International Monetary Fund on Tuesday, it is the last act in a crisis with potentially cataclysmic effect. Either Tsipras betrays his own ideology to deter default – reneging on promises that got him into power – or he goes down as the man who allowed his country to do what no other EU member has done: enter the uncharted waters of euro exit. It is a moment of truth with consequences far beyond the borders of Greece.

“No doubt he is having nightmares about betraying ideas that he has held dear all his life,” said Aristides Hatzis, associate professor of law and economy at Athens University. “To make such a U-turn he is going to have to cross red lines that require a leap of faith I am not sure he has.”

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Friday, May 8, 2015

Greek PM forecasts 'happy end'; Eurogroup chief cites progress in talks

Reuters
May 8, 2015

Greek Prime Minister Alexis Tsipras forecast a happy end soon to fraught negotiations with creditors on a cash-for-reform deal, and the chairman of euro zone finance ministers said talks were making progress, though not enough for a deal next Monday.

However, with Greece's cash reserves dwindling, EU officials said there was no breakthrough in talks with the International Monetary Fund, the European Commission and the European Central Bank on sticking points such as pension and labor market reforms and budget targets.

"The organization and structure of the talks has improved, compared to what it was before, but we are still quite some way away from a situation that you could describe as a final agreement being well in sight," a senior euro zone official said.

Greece's leftist-led government, which was elected earlier this year on promises to end austerity policies, has dragged its feet on accepting unpopular reforms promised by a previous government under the country's EU/IMF bailout program.

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Documents Distributed by Greece’s Yanis Varoufakis Baffle Eurozone Officials

by Viktoria Dendrinou

Wall Street Journal

May 8, 2015

Economic plans and growth estimates distributed by Greek Finance Minister Yanis Varoufakis to some of his eurozone counterparts have baffled officials involved in the talks over its international bailout.

Officials say that the files differ greatly from what has been discussed at the technical level in Brussels in recent days and underline how Mr. Varoufakis continues to complicate progress toward a financing deal.

The 36-page document, entitled “Greece’s recovery: A blueprint” and seen by The Wall Street Journal, was presented by Mr. Varoufakis to his counterparts in Paris and Rome, as well as senior officials in Brussels, while he was touring European capitals over the past week, according to four European officials.

Mr. Varoufakis declined to comment on the document Friday in Madrid after meeting with Spanish Finance Minister Luis de Guindos.

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Thursday, May 7, 2015

Five Years On, Doctor and Patient Split on Greek Cure

by Marcus Walker

Wall Street Journal

May 7, 2015

Greece and its creditors, deadlocked over fresh financing, agree on at least one thing about the country’s mammoth bailout, launched five years ago this month: It hasn’t worked as hoped.

But Athens and its lenders—the eurozone and the International Monetary Fund—disagree diametrically on why the bailout program has flopped. This dispute about the past five years helps explain why the players so often seem to be talking past each other today, and why reaching agreement on further aid is proving so hard.

Lenders, led by Germany, believe that the bailout’s blueprint was and remains correct, but that Greece failed to follow it. Rapid deficit-cutting was the only way to cure Greece’s debt problem. The rollback of stifling regulation and unaffordable social benefits and an injection of free-market competition were unavoidable if Greece was to grow sustainably.

German leaders such as Finance Minister Wolfgang Schäuble see Greece as the patient that didn’t take its pills, unlike others in the same hospital, such as Portugal and Ireland, who swallowed the same medicine and recovered. To many Greeks, however, the eurozone seems more like the psychiatric ward in the Ken Kesey novel One Flew Over the Cuckoo’s Nest, where a domineering “Big Nurse” controls the inmates through punishment and humiliation.

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TRAC: A market-based tax on capital flight as an alternative to Grexit

by Daniel Gros

Centre for European Policy Studies

May 7, 2015

In this CEPS Commentary, Daniel Gros turns his attention to the main outstanding problem facing Greece today, namely capital flight. Fearful that the country will leave the euro, depositors are withdrawing cash from their bank accounts – thereby making this event more likely. He outlines a proposal in which outgoing payments from Greek banks in the form of cash or via the TARGET system would be limited to the amount of incoming payments, i.e. revenues from exports or tourism, via an auction system. Greece could remain formally a member of the euro area, but the price for cash withdrawals would encourage depositors to wait and stimulate exports.

Download the Commentary (PDF)

The Other Damage Greece’s Government Is Doing

by Yannis Palaiologos

Wall Street Journal

May 7, 2015

Greece mostly attracts attention these days for the difficulty it’s experiencing negotiating new terms with its creditors. But that’s only half the story. Over the past four months an economy that had barely managed to grind into first gear last year has shifted back into reverse.

The European Union’s spring economic forecast, released this week, now predicts Greece’s economy will grow by a mere 0.5% this year. Only three months ago the EU expected Greece to expand by 2.5% in 2015. Because this economic contraction weighs on tax receipts, the International Monetary Fund now expects Athens will run a fiscal deficit before debt service this year. Even if the government succeeds in its negotiating aim to set a target primary surplus of 1.5% instead of 3% for 2015, it would take significant further fiscal retrenchment to meet it.

Such a downturn was far from inevitable. Investing in Greece had always been difficult, even before the crisis that began in late 2009. The sclerotic bureaucracy, the corruption, the ever-shifting tax rates and the constant danger of judicial deadlock meant that Greece had some of the lowest foreign-direct-investment rates in the eurozone. The crisis, and above all the threat of a Greek exit from the common currency, made this considerably worse.

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Putin Tells Greece Financial Aid Is Tied to Russian Pipeline

Wall Street Journal
May 7, 2015

Russia’s President Vladimir Putin said Thursday he was ready to consider financial help for debt-stricken Greece, so long as Athens signs up to a project to bring more Russian gas to Europe.

Greece’s leftist government, which is locked in negotiations on economic overhauls with its international creditors, has hoped to receive an economic boost from Russia.

But despite a trip to Moscow by Greece’s Prime Minister Alexis Tsipras in early April, Athens has so far failed to secure any help, either in the form of cheaper natural gas supplies or an exemption from Moscow’s ban on European food imports.

Both Mr. Tsipras and Mr. Putin said at the time Greece wasn't looking for financial aid.

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The sorry saga of Syriza

Economist
May 9, 2015

In recent months the walls of the B. & M. Theocharakis Foundation in Athens have been lined with mementoes of European support for Greece’s freedom. “Philhellenism”, an exhibition, tells the story of the material and moral backing that Romantics like the English poet Byron gave Greece during its independence fight against the Ottomans. The contemporary resonances are obvious. Showing some children around, Dimitra Varkarakis, who with her husband, Michael, owns the works on display, pointed to a German painting. One girl stopped short. “Aren’t we in a fight with Germany?” she asked. “No,” replied Mrs Varkarakis. “We are all friends.” After recounting this tale she casts Charlemagne an earnest look. “Europeans,” she says, “must love each other.”

That is a noble aim, for some Europeans have lately struggled even to speak to each other. Two weeks ago, after a particularly disastrous meeting, Yanis Varoufakis, Greece’s finance minister, declared that he welcomed the hatred directed against him in the euro zone. After more than three months of fruitless negotiations with Mr Varoufakis, the reserves of Philhellenism among Greece’s partners have run utterly dry. “They are living in cloud-cuckoo land,” says one Brussels official.

Perhaps it was naive to expect anything else. A few years ago many of the men now in charge spent their time discussing the contradictions of capitalism over coffee and cigarettes. Few had ever run anything, let alone a government. Their European contacts were limited. Syriza, their party, typically won only 3-4% of the vote. But Greece’s economic calamity transformed its prospects. In 2012 it came within a whisker of power. And after January’s election it went one better, forming a governing coalition.

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Greece Saunters Across the Autobahn

by Michael Lewis

Bloomberg

May 7, 2015

A few years ago, the Berkeley Police Department applied for and received a grant from the state of California to improve the behavior of local drivers. The grant came on the heels of data showing that Berkeley was perhaps the most dangerous city in the state in which to cross the street: The previous year more pedestrians had been struck by automobiles in Berkeley than in any of the 55 other comparably sized California cities.

But as anyone who lives here knows, the drivers aren't really the problem. Or rather, they aren't any more of a problem than they are any place else in California, and probably a lot less of one.

The Berkeley pedestrian, on the other hand, seems bent on his own destruction. In daylight hours you can find him sprinting from behind tall bushes into busy intersections, ear buds in place to ensure he remains oblivious to any danger; at night he dons dark clothing and slips, ninja-like, from shadows onto poorly lit streets. It's California law that a pedestrian, when he arrives at a crosswalk, must stop and make eye contact with any approaching driver: Hardly anyone here pays that law any attention. If the Berkeley pedestrian glances up at all, it's to glare at any driver moving slowly enough to notice his sudden, almost magical appearance in the middle of the road.

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Wednesday, May 6, 2015

Greece overturns civil service reforms

by Kerin Hope & Peter Spiegel

Financial Times

May 6, 2015

Even as the Greek government scrambled to reach an agreement on new economic reforms with its creditors in Brussels, it began reversing similar measures agreed during previous bailout negotiations in a parliamentary session in Athens.

A new law proposed by the leftwing Syriza-led government and passed Tuesday night opens the way to rehire thousands of workers cut loose from the country’s inefficient public sector in a reform enacted by the previous government.

The move came on the same day the new government announced changes to a finance ministry system of electronic procurements and public payments that was supposed to improve transparency and had been blessed by international lenders.

And it followed legislation passed last week to reopen the state broadcaster, ERT, which was shut down by the previous government as a cost-cutting measure.

The moves highlighted the conflicting impulses of Greece’s new left-wing government and creditors bent on securing economic reforms in exchange for their support.

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