Halister News

(Bloomberg) -- The additional EU3.6b in fiscal savings demanded by creditors will make it harder for Greek PM Tsipras’s govt to protect his support base and risks more defections, Eurasia analyst Mujtaba Rahman writes in client note.

• As many as 7 to 11 Greek MPs may not vote for the package if it contains detailed measures the Eurogroup and IMF are pushing for; govt holds a 2-seat majority
• Tsipras attempting to pressure creditors for a swift, flexible deal with possibility of early elections in June
• Only two credible scenarios going forward: a deal (55%) or early elections (45%); core players in Europe likely to strive for an agreement
  • Even bigger adjustments needed if elections occur; a vote could spur uncertainty, capital flight, revenue shortfalls and a possible relaxation of tax administration by the govt
  • A new govt led by New Democracy will push for a different policy mix but will still struggle to make the significant fiscal adjustments needed
• Greece and its creditors need to resolve three related negotiations by the May 24 Eurogroup meeting if a deal is to be reached ahead of the Brexit referendum
  • However, a deal on a “contingency package” of measures worth 2% of GDP and a settlement on debt relief seems some way off;
  • Negotiations on contingency now being handled at the “political level” and not by mission chiefs; may prove to be a double-edged sword given the large trust deficit between the IMF and the European Commission’s most senior leadership
• NOTE: Analyst say a Greek deal could take months; Greek discussions come amid a Spanish political deadlock and U.K. referendum