What’s happening in the Eurozone tonight...

Out of the talks between what was known as the Troika and the new Syriza government of Alexis Tsipras rumours are emerging. The rhetoric is that neither side is willing to budge and that the talks have not reached an agreement, but the whispers are that one is near.

Here is what we know:

1)    The ECB’s move last week to force Greece to rely on the emergency financing had the effect of shortening the timetable for these negotiations to conclude. Several news organisations are now reporting that money is leaving Greek banks at an ever quickening pace, bringing forward the time when they will need refinancing. The Troika imposed reforms forced the previous Greek government to hold some reserves but they are not likely to be that huge. As it stands the Greece could run out of money by the end of March.

2)    No one wants Greece to default. This means that the Greek government is unlikely to want to play this card in the negotiations. The Greek people are opposed to default and, even though default has a worse reputation than it deserves, it would bring immense hardship and the social unrest in the short term. What is more, it looks as though default may not be the nuclear weapon it may once have been. The fluctuations in the Greek markets have not been mirrored outside Greece, suggesting that the markets believe that other European economies are sufficiently insulated to withstand a Greek default. If Greece had defaulted in 2010 or 2011 it would have dragged the Eurozone down with it, not any longer.

3)    Greece wants a bridging package rather than a bailout extension, the Troika doesn’t. The bridging package would be designed to get Greece through the next six months whist a long-term solution was negotiated. Here Syriza may be playing on a loosing wicket, there seems to be no reason for the Troika to agree to a bridging package, the shorter the timetable the weaker the Greek governments negotiating position. In exchange for the bridging loan Tsipras has offered to the run a primary surplus of 2% (rather than the 4.5% demanded by the Troika) and to slow down the implementation of some of his manifesto.

It now looks like there will be an agreement. George Osborne said at the weekend that the Treasury is drawing up contingency plans for Grexit but this does not seem to have been mirrored in Germany, whose finance ministry are on record saying there is no possibility of Greece leaving the Euro. What will almost certainly happen is that there will be either a bailout extension which looks enough like a bridging agreement for Syriza to claim victory or a bridging loan which looks enough like a bailout extension for the Troika to claim that they have stood firm. Given the comparative strength of the negotiating positions the former looks more likely than the latter, although there is no guarantee that the activist core of Syriza would accept this. They may be the wild card in this which no one can control.