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    Tsakalotos instead of Varoufakis – what will change?

    After last Friday, April 24, the Riga talks between the Eurozone and Greece reached an impasse, Greek Prime Minister Alexis Tsipras discussed on the phone the situation with a number of high-ranking European officials the following weekend, including German Chancellor Angela Merkel. And on Monday, April 27 the unexpected news came in – Greek Finance Minister Varoufakis will no longer head the delegation to Athens for the negotiations on financial assistance program to the troubled country.

    Apparently, the Deputy Foreign Minister Tsakalotos who has been entrusted to represent the Government of Tsipras in the negotiations won’t take a hard line in negotiations and will be ready for compromise, unlike his maverick predecessor  Varufakis, whom the Eurozone colleagues could no longer tolerate.

    Varufakis insisted that the negotiations on Greek debt should be based on the recognition by both parties that there’s no chance that Greece would be able to payout it’s giant debt (about 175% of GDP). Varufakis this scientist and economist, who was suddenly snatched from the quiet of his study room and dropped into the epicenter of hot European political debates, repeatedly stated – it is impossible to pay the debt, look at the numbers – I’ve calculated everything. And if paying off the debt is hopeless, there are only two options left – debt forgiveness or default. These two options should be discussed …

    But, the Eurozone officials aren’t ready to accept any of these options. On the one hand, they can’t simply write off Greece’s debt – taxpayers of other European countries wouldn’t forgive Brussels for this decision. On the other, to let Greece declare debt default is not an option either. And not only because it will affect the whole Eurozone economy. It will discredit the very idea of the European integration and jeopardize the European reputation. Too much time and too many efforts have been put into saving Greece. In this situation, default would be a shame for the whole Eurozone.

    So what can be done now? The euro zone could offer Greece a way out, being like – “We give you some more time to work out the way to pay off your debt – take as much time as you need, five or even ten years! Try to carry out reforms, introduce austerity measures, reduce costs! And if you still fail, we promise to help and will even consider the debt forgiveness option if needed. But first you must prove that you did everything possible and impossible, and therefore deserve leniency from creditors! “.

    Such plan of action is favorable for the Eurozone, because a few years later, when the region’s economy will get stronger after the crisis, it will be able to afford to write off Greek debt. And we can only hope that by that time the rest of the country-members of the currency bloc and their citizens wouldn’t be wondering: why the debts is being written off only from the Greeks?

    The problem is whether this scheme will be acceptable for Tsipras, who came to power on promises of debt relief and cancelation of strict austerity regime. After all, the “SYRIZA” electorate will most likely consider concessions to Brussels as a betrayal … Although Tsipras doesn’t have very much of a choice – without the help of the creditors he will soon be unable to pay salaries and pensions, but this is unlikely to please the voters.

    Anyway, I hope that the agreement between Greece and the Eurozne will be finally reached. Two-year old Greek bond yields are now much lower than a week ago, retracing to March levels.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!

    After last Friday, April 24, the Riga talks between the Eurozone and Greece reached an impasse, Greek Prime Minister Alexis Tsipras discussed on the phone the situation with a number of high-ranking European officials the following weekend, including German Chancellor Angela Merkel. And on Monday, April 27 the unexpected news came in – Greek Finance Minister Varoufakis will no longer head the delegation to Athens for the negotiations on financial assistance program to the troubled country.

    Apparently, the Deputy Foreign Minister Tsakalotos who has been entrusted to represent the Government of Tsipras in the negotiations won’t take a hard line in negotiations and will be ready for compromise, unlike his maverick predecessor  Varufakis, whom the Eurozone colleagues could no longer tolerate.

    Varufakis insisted that the negotiations on Greek debt should be based on the recognition by both parties that there’s no chance that Greece would be able to payout it’s giant debt (about 175% of GDP). Varufakis this scientist and economist, who was suddenly snatched from the quiet of his study room and dropped into the epicenter of hot European political debates, repeatedly stated – it is impossible to pay the debt, look at the numbers – I’ve calculated everything. And if paying off the debt is hopeless, there are only two options left – debt forgiveness or default. These two options should be discussed …

    But, the Eurozone officials aren’t ready to accept any of these options. On the one hand, they can’t simply write off Greece’s debt – taxpayers of other European countries wouldn’t forgive Brussels for this decision. On the other, to let Greece declare debt default is not an option either. And not only because it will affect the whole Eurozone economy. It will discredit the very idea of the European integration and jeopardize the European reputation. Too much time and too many efforts have been put into saving Greece. In this situation, default would be a shame for the whole Eurozone.

    So what can be done now? The euro zone could offer Greece a way out, being like – “We give you some more time to work out the way to pay off your debt – take as much time as you need, five or even ten years! Try to carry out reforms, introduce austerity measures, reduce costs! And if you still fail, we promise to help and will even consider the debt forgiveness option if needed. But first you must prove that you did everything possible and impossible, and therefore deserve leniency from creditors! “.

    Such plan of action is favorable for the Eurozone, because a few years later, when the region’s economy will get stronger after the crisis, it will be able to afford to write off Greek debt. And we can only hope that by that time the rest of the country-members of the currency bloc and their citizens wouldn’t be wondering: why the debts is being written off only from the Greeks?

    The problem is whether this scheme will be acceptable for Tsipras, who came to power on promises of debt relief and cancelation of strict austerity regime. After all, the “SYRIZA” electorate will most likely consider concessions to Brussels as a betrayal … Although Tsipras doesn’t have very much of a choice – without the help of the creditors he will soon be unable to pay salaries and pensions, but this is unlikely to please the voters.

    Anyway, I hope that the agreement between Greece and the Eurozne will be finally reached. Two-year old Greek bond yields are now much lower than a week ago, retracing to March levels.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!


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