Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

Posts by Category

Showing posts for "Euro Zone"

Greece: Game Over?

by Robert Kahn
People line up to withdraw cash in Athens on June 28, 2015. (Alkis Konstantinidis/Reuters) People line up to withdraw cash in Athens on June 28, 2015. (Alkis Konstantinidis/Reuters)

This is how Grexit happens. Following the collapse of negotiations between Greece and its creditors, the European Central Bank (ECB) has halted emergency liquidity assistance. Facing an intensified bank run, the Greek government on Sunday introduced banking controls and declared a bank holiday. With substantial wage and benefit payments due this week and local banks out of cash, economic conditions are likely to deteriorate quickly in Greece ahead of a planned referendum for July 5 asking Greek voters whether the government should accept a creditor-backed reform plan.

Read more »

Déjà vu in Greece

by Robert Kahn

Here we go again. The counterproposal from Greece’s creditors has been leaked, and it underscores how far apart the two sides remain on a range of issues: VAT, corporate taxes, and especially pensions. Greek Prime Minister Alexis Tsipras has been called to Brussels to join European finance ministers in a marathon push today to negotiate a compromise that will release critically needed funding. We heard reports today of Greek backtracking, of the IMF’s deep resistance to the Greek proposals, and the prime minister’s questioning of his creditors’ motives. This is a dynamic we have become all too familiar with. It doesn’t preclude a deal, but it makes it harder to get to “yes” and contributes to short-term, kick-the-can solutions.

Read more »

Greece: Still No Deal

by Robert Kahn
Greece: Still No Deal Critical decisions will likely have to wait for the next finance ministers’ gathering. (Paul Hanna/Reuters)

European finance ministers met earlier today and afterwards stated that new proposals from the Greek government were “broadly comprehensive” and “a solid basis” for restarting talks, but made clear that the Greek plan was far from complete and received too late for a deal to be concluded today. Markets had rallied earlier on hopes of a deal. But they fell back on comments from German Finance Minister Wolfgang Schauble and others who saw little new in the Greek proposal, suggesting significant splits among creditors. Leaders meet this evening, but it now appears that critical decisions will wait for the next finance ministers’ gathering, likely Thursday. Separately, the European Central Bank’s (ECB) board again expanded emergency assistance by 2 billion euros to Greek banks after weekend ATM withdrawals and orders for today reportedly exceeded 1.4 billion euros. With today’s modestly constructive statements though, it will be difficult for the ECB to cut off access to Greek banks over the next few days even in the face of broad insolvency in the Greek financial system.

Read more »

Greece’s Bridge to Nowhere

by Robert Kahn
Greece's Bridge to Nowhere Last week, Greece delayed a $338 million payment to the IMF as negotiations stalled. (Grigoris Siamidis/Reuters)

Negotiations continue today between Greece and its creditors, with reports that the government has presented a revised proposal that offers minor concessions in an effort to break the deadlock. A deal is needed in the next week if a package of assistance is to be put in place before end-month payments of $1.7 billion are due to the IMF. While this is not a hard deadline—a short-term default to the IMF need not sink the Greek economy—the government is out of cash and it is hard to imagine how they make critical domestic payments without an injection of cash from creditors.

Read more »

Greece—a Destabilizing Financial Squeeze

by Robert Kahn

Technical talks between Greece and the Troika concluded today without a deal, another setback for Greece as domestic financial stress mounts.  Robin Brooks at Goldman-Sachs makes the important point—financial conditions have tightened sharply, and will have adverse and destabilizing effects on growth regardless of whether there is a deal next week between Greece and its European creditors on a reform package.  Household deposits in Greece (red line in the left chart) and deposits in non-financial corporations (right chart) have fallen sharply, causing a destructive tightening in financial conditions at a time when banks are already in trouble and constricting credit. (Anecdotal evidence suggests this trend is continuing, with additional outflows from Greek banks in March.) At the same time, a severe squeeze on fiscal resources is forcing the government to make tough decisions about who to pay and who not to pay—which I have called “the politics of arrears”.

Read more »

Greece and the Politics of Arrears

by Robert Kahn
Merkel-Tsipras German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras review an honour guard during a welcoming ceremony at the Chancellery in Berlin on March 23, 2015. (Pawel Kopczynski/Courtesy Reuters)

Greece is running out of money. Greek Prime Minister Alexis Tsipras’s meeting this week with German Chancellor Angela Merkel has taken some of the toxicity out of the conversation for now, but cannot mask Greece’s current collision course with its creditors. Committed to a platform on which it was elected but that it cannot pay for, and with additional EU/ECB financing conditioned on reform, the Greek government is likely to run out of money in April (if not before). If past emerging market crises are any guide, the decisions that it will then confront about who to pay and who not to—the politics of arrears—will present a critical challenge to the government and likely define the future path of the crisis.

Read more »

The Meaning of Ukraine’s IMF Deal

by Robert Kahn

While today’s headlines focus on the truce agreement between Ukraine and Russia, a significant economic milestone was achieved yesterday with the IMF’s announcement that its staff has reached agreement with the government on a new four-year program. The Fund’s Board will likely consider the program next month. Whether or not the truce holds, the program is the core of western financial support for Ukraine. Is it enough?

Read more »

Greece: Let’s Make a Deal?

by Robert Kahn

Syriza’s victory in Greek elections yesterday, and the announcement this morning that they would rule in coalition with the right-wing Independent Greeks party, all but ensures a confrontation between Greece and its European creditors over austerity and debt. While Greek markets have continued their sell-off on the result, 10-year yields near 8.9 percent are still down from earlier this month and well below earlier crisis levels. In line with these numbers, most market analysts believe a deal is likely that would avoid a Greek exit from the eurozone, noting some moderation of Syriza’s rhetoric in recent days and upcoming meetings with creditors. But what would such a deal look like? Greece and its creditors are so far apart, their perceptions of their negotiating leverage so different, and time so short to reach an agreement, that the risk of failure seems higher than implied by market prices.  A few points.

Read more »

G20 Worries About Growth

by Robert Kahn

The central message from the G20 Summit in Brisbane last weekend was the need for more growth, and there was a clear sense after the meeting that leaders are worried. David Cameron captured the mood with his statement that “red warning lights are flashing on the dashboard of the global economy” and his concern about “a dangerous backdrop of instability and uncertainty.” While Europe came in for the most criticism (Christine Lagarde rightly worries that high debt, low growth and unemployment may yet become “the new normal in Europe”) concerns about growth in Japan and emerging markets also weighed on leaders. In the end, though, the diplomacy conducted on the sidelines was more meaningful than the growth proposals put forward at the summit.

Read more »