Saturday 1 October 2016

Hope of new Greek breakthrough helps Japanese shares hit 15 year high

* Eurogroup chairman says proposal is a basis for talks
* Merkel warns that summit cannot make a decision
* Greek stock market surges 9 percent on hopes of deal
* ECB increases emergency liquidity for Greek banks

Renee Maltezou and Jan Strupczewski

Published 22/06/2015 | 23:49

Greek Prime Minister Alexis Tsipras, left, speaks with European Commission President Jean-Claude Juncker as he arrives for a meeting prior to an EU summit in Brussels (AP)
Greek Prime Minister Alexis Tsipras, left, speaks with European Commission President Jean-Claude Juncker as he arrives for a meeting prior to an EU summit in Brussels (AP)

Asian shares rose this morning and stocks in Japan hit a 15 year high after Greece's latest budget proposals raised hopes it would stave off a debt default and reach a deal with lenders later this week.

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The brighter mood was expected to extend into many European markets even as some strategists remained sceptical. Financial spreadbetters predicted Germany's DAX .GDAXI to gain as much as 0.7pc, and France's CAC 40 .FCHI 0.6pc. But Britain's FTSE 100 .FTSE was called to open 6 points lower, or down 0.05pc.

Greek Finance Minister Yanis Varoufakis, left, speaks with Irish Finance Minister Michael Noonan at the start of the annual meeting of the European Stability Mechanism Board in Luxembourg on Thursday, June 18, 2015. German Chancellor Angela Merkel is pressing Greece to deliver on commitments to carry out reforms, stressing that she wants the country to remain in the common currency. (AP Photo/Virginia Mayo)
Greek Finance Minister Yanis Varoufakis, left, speaks with Irish Finance Minister Michael Noonan at the start of the annual meeting of the European Stability Mechanism Board in Luxembourg on Thursday, June 18, 2015. German Chancellor Angela Merkel is pressing Greece to deliver on commitments to carry out reforms, stressing that she wants the country to remain in the common currency. (AP Photo/Virginia Mayo)

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.6 percent, while Japan's Nikkei share average .N225 jumped 1.9pc  to a fresh 15-year high as investors bought back some of the shares they unloaded over three losing weeks.

Yesterday Greece took a step back from the abyss with the presentation of new budget proposals that euro zone leaders welcomed as a basis for a possible agreement in the coming days to unlock frozen aid and avert a looming default.

European Council President Donald Tusk, who chaired an emergency summit of leaders of the 19-nation currency bloc, called the Greek proposals "a positive step forward". He said the aim was to have the Eurogroup finance ministers approve a cash-for-reform package on Wednesday evening and put it to euro zone leaders for final endorsement on Thursday morning.

However, there must first be a detailed agreement with representatives of European governments, the European Central Bank and the International Monetary Fund to ensure the numbers add up, he said.

Read more here: Greece: Global stock markets jump as Greece talks progress  

European stock markets and Greek assets surged on Monday on hopes of a last-minute deal to ease a crisis that is threatening to drive Greece out of the euro and weaken the foundations of the European Union's single currency.

"I am convinced that we will come to a final agreement in the course of this week," European Commission President Jean-Claude Juncker told a late-night news conference.

German Chancellor Angela Merkel, whose country is Greece's biggest creditor, was more cautious. "I can't give any guarantee that that will happen," she said of a final agreement. "There's still a lot of work to be done."

(L-R) German Chancellor Angela Merkel, International Monetary Fund (IMF) Managing Director Christine Lagarde, European Commission President Jean-Claude Juncker, European Central Bank President Mario Draghi, French President Francois Hollande and Greek Prime Minister Alexis Tsipras attend a Eurozone emergency summit on Greece in Brussels
(L-R) German Chancellor Angela Merkel, International Monetary Fund (IMF) Managing Director Christine Lagarde, European Commission President Jean-Claude Juncker, European Central Bank President Mario Draghi, French President Francois Hollande and Greek Prime Minister Alexis Tsipras attend a Eurozone emergency summit on Greece in Brussels

Read more here: Taoiseach: A decision on continuing Greek crisis must be made this week  

The Greek proposals included higher taxes and welfare charges and steps to curtail early retirement, but not the nominal pension and wage cuts first sought by lenders. Leftist Prime Minister Alexis Tsipras, elected in January on a promise to end austerity measures, also appeared to have avoided raising value added tax on electricity or loosening job protection laws.

The cash-starved country must repay the IMF 1.6 billion euros by June 30 or be declared in default, potentially triggering a bank run and capital controls.

Jeroen Dijsselbloem, chairman of the euro zone finance ministers, described the new Greek document as comprehensive and "a basis to really restart the talks". He said negotiations in the coming days would show whether the numbers added up.

German Finance Minister Wolfgang Schaeuble
German Finance Minister Wolfgang Schaeuble

He left the summit saying only that there would be "hard work for the next few hours".

 

German Finance Minister Wolfgang Schaeuble was the most negative, telling reporters earlier in the day he had seen nothing really new from Greece.

Participants said Schaeuble questioned in the Eurogroup meeting whether the European Central Bank should continue emergency lending to Greek banks if there was no deal this week and whether it should not be accompanied by capital controls.

A Greek official said ECB chief Mario Draghi had reassured Tsipras in a private meeting that the central bank would continue to support Greek banks as long as Athens remained in a bailout programme. An ECB source said there was no direct link between the emergency liquidity assistance and the programme.

Greek Prime Minister Alexis Tsipras has presented a new financial proposal to EU leaders. (AP)
Greek Prime Minister Alexis Tsipras has presented a new financial proposal to EU leaders. (AP)
Greek Finance Minister Yanis Varoufakis
Greece's Finance Minister Yanis Varoufakis arrives for a cabinet meeting at the Prime Minister's office in Athens

Read more here: Finance Minister: It's not clear Greece has moved far enough to secure deal  

Participants said IMF chief Christine Lagarde cast doubt in the meeting on whether the proposals were sufficient to make Greece's public finances sustainable.

"We have a huge amount of work to do in the next 48 hours. We are not at all at the end of the route," Lagarde said on leaving the summit.

Tsipras had demanded a promise of debt relief as a condition for a deal, but both Merkel and Juncker said now was not the time to discuss it. An EU diplomat said Tsipras struck a very cooperative tone in the summit and promised to work further on the proposals to ensure a deal this week.

Juncker said he had proposed a 35 billion euro programme for growth-enhancing measures in Greece up to 2020. The money appeared to be a restatement of existing EU budget funds earmarked for Athens.

'GREXIT' AVOIDED?

Tusk said he had called the summit to try to break the deadlock and avoid a worst-case "uncontrollable chaotic Grexit", while letting experts thrash out the details.

Read more here: Mood brightens after latest Greek offer to creditors  

He called for an end to the "blame game" between Athens' young left-wing Syriza government, which sought to scrap the austerity measures that were a condition of past bailouts, and creditors who refused to keep funding Greece without being sure that its public finances are sustainable.

The US government sought to pressure all sides to reach a swift agreement and avert a crisis that has been weighing on world markets.

US Treasury Secretary Jack Lew urged Tsipras in a phone call to make a "serious move" at reaching a deal with Athens' creditors to avert "immediate hardship for Greece and uncertainties for Europe and the global economy". He also telephoned Lagarde to underline that all sides in the talks must come to a rapid agreement.

With anxious Greek savers continuing to withdraw cash, though apparently in smaller amounts on Monday than last week, the ECB increased its emergency lending to Greek banks for the third time in a week.

Read more here: Bailout talks end without progress  

But after months of acrimony, the positive mood music in Brussels gave investors hope that an agreement might be near.

European shares hit their highest level in a week and the Greek stock market jumped 9 percent while the borrowing costs of Italy, Spain and Portugal - the countries most likely to be hit if Greece headed for the euro zone exit - fell sharply.

The DAX index of leading German shares closed up 3.9 percent and France's CAC 40 stock index was up 4.1 percent.

TAX AND PENSION REFORMS

In its proposal, Greece offered to raise the retirement age gradually to 67 and curb early retirement. It also offered to reform the value-added-tax system to set the main rate at 23 percent, and promised additional taxes on business and the wealthy.

Economics Minister George Stathakis told the BBC that Athens had avoided crossing "red lines" set by Syriza, since it would not cut pensions or wages or raise the VAT rate on electricity.

In an example of the anger that Athens has caused in northern Europe, Hans-Peter Friedrich, deputy parliamentary floor leader for Merkel's conservatives, said there was no point in "dragging out a bankruptcy for political reasons".

"We do the greatest harm to Europe if we lie to ourselves", he said, adding that he was sceptical that the Greek government would provide adequate assurances to win German parliamentary support for further aid.

Several thousand pro-European Greeks staged a demonstration in favour of staying in the euro on Monday in central Athens, a day after thousands of leftists had rallied to protest against a new round of cuts.

Reuters

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