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News : EU Economy Last Updated: Jun 15, 2015 - 11:23 AM


Greek talks collapse; Game theorists gambling with future — Germany's vice-chancellor
By Michael Hennigan, Finfacts founder and editor
Jun 15, 2015 - 6:24 AM

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Talks in Brussels between representatives of the Greek government and the European Commission abruptly broke down Sunday while Sigmar Gabriel, Germany's vice-chancellor and leader of the left of centre SPD party, which has been generally conciliatory towards Greece, warns Monday: "The game theorists of the Greek government are just about to gamble away the future of their country."

Yanis Varoufakis, Greece's finance minister, and a professor of economics at the University of Athens, is co-author of a book on game theory.

Following a 45-minute meeting in Brussels Sunday, a Greek government spokesperson said the demands of its international creditors were "irrational," putting the blame on the International Monetary Fund (IMF), saying its position was "intransigent and tough" following demands for further pension cuts and a rise in value-added tax.

Greece is seeking the payment of the €7.2bn outstanding balance in the current bailout that is due to expire on June 30, to avoid defaulting on its debts — including a €1.5bn loan repayment due to the IMF in just two weeks.

The Financial Times reports that a European Commission spokesman said there remained a “significant gap” between the sides, amounting to up to €2bn per year, and there was no longer time to reach a “positive assessment” of Greek efforts before a meeting of Eurozone finance ministers on Thursday.

“While some progress was made, the talks did not succeed,” said the spokesman. “On this basis, further discussion will now have to take place in the Eurogroup.”

The Wall Street Journal says today that the "swiftness with which European officials dismissed the Greek government’s latest proposals on Sunday — calling them “vague and repetitive” — suggests Prime Minister Alexis Tsipras is placing all of his bets on appealing for better terms to German chancellor Angela Merkel and the 17 other Eurozone leaders at a Brussels summit on June 25. If he fails, a default on the country’s debt and a possible exit from the currency bloc loom."

The Journal adds: [The talks — led on the Commission side by Martin Selmayr, the German chief of staff for European Commission president Jean-Claude Juncker, and on the Greek side by Nikos Pappas, a minister of state and close confidante of Mr. Tsipras — came to a head Sunday evening, when the Greek side submitted a final proposal, which again didn’t spell out the measures demanded by the creditors.

“Is there a difference in figures to what you sent us yesterday?” Mr. Selmayr asked Mr. Pappas, according to two people familiar with the talks. When the latter answered with no, Mr. Selmayr called off the meeting, which according to the people, lasted for less than half an hour. “Then, as I already said yesterday, there is no basis for discussion of this paper,” he said, according to the two people.]

Speaking to AFD, German public broadcaster,  on Sunday, Sigmar Gabriel, who is also Germany's economy minister, said the German government stood by the EU-IMF creditors, saying his country "would not be blackmailed" into a bailout deal with Greece.

The vice chancellor writes Monday in Bild, the mass circulation tabloid: "We want to help Greece and keep it in the euro. However, not just time is running out but also, everywhere in Europe, patience."

"Every new supposed 'final attempts' to reach agreement are beginning to make the entire process look ridiculous," he writs, according to an excerpt issued Sunday, according to Reuters.

"Ever more people feel they are being led around by the nose by the Greek government.

"If the agreement doesn't come soon, it will threaten to snap the patience of many in Europe," Gabriel warned.

"The game theorists of the Greek government are just about to gamble away the future of their country. And that of Europe as well."

In a blog post on Sunday, Olivier Blanchard, IMF chief economist, commented: "How should the initial set of reforms be reassessed? Greek citizens, through a democratic process, have indicated that there were some reforms they do not want. We believe that these reforms are needed, and that, absent these reforms, Greece will not be able to sustain steady growth, and the burden of debt will become even higher. Here again, there is a trade off: To the extent that the pace of reform is slower, creditors will have to provide more debt relief. Here again, there is a clear limit to what they are willing to do.

The offer made to the Greek government last week reflected these considerations and these tradeoffs. It proposed to lower the medium term primary budget surplus target from 4.5% of GDP to 3.5%, and give Greece two more years to achieve that target — so the target for this year was reduced to 1% — and it asked for a more limited set of reforms.

For a deal along these lines to be effective and credible however, two conditions must be satisfied."

The FT’s Gideon Rachman and Tony Barber discuss the deepening Greek debt crisis, focusing on the IMF’s pullout from talks, the increasing difficulty Greece faces to pay public sector workers and its growing isolation in negotiations with creditors:

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