Euro rises as Greece offers new proposals to avert default
The euro rose against the dollar on Monday on a glimmer of hope that Greece may avert a debt default after Athens offered new proposals to foreign creditors ahead of the emergency euro zone summit later in the day.
The common currency ticked up 0.3pc to $1.1383, inching closer to a one-month high of $1.1440 hit on Thursday.
But many investors remained cautious because it was not immediately clear how far the new proposals yielded to creditors' demands for additional spending cuts and tax hikes, nor whether creditors can stomach the offer.
"The euro is surprisingly solid. It's either that markets are still betting that some sort of fix can be found for Greece's funding woes or speculators are closing their short positions," said Daisuke Karakama, chief market economist at Mizuho Bank.
Yesterday Greek Prime Minister Alexis Tsipras promised a series of 11th-hour concessions and reforms in a bid to break a deadlock that has pushed Greece to the brink of bankruptcy.
After months of wrangling and with anxious depositors pulling billions of euro out of Greek banks, Mr Tsipras's leftist government showed a new willingness this weekend to make concessions that would unlock frozen aid to avert default.
French President Francois Hollande confirmed Greece had submitted new proposals, but it is not clear how far the measures go to meet creditors' demands for additional spending cuts and tax hikes.
A day before emergency meetings, including a summit of eurozone leaders in Brussels, Mr Tsipras was holed up in a marathon cabinet meeting and discussed the new offer with the leaders of Germany, France and the EC by phone.
"The prime minister presented the three leaders Greece's proposal for a mutually beneficial agreement that will give a definitive solution and not a postponement of addressing the problem," Mr Tsipras's office said in a statement.
Louka Katseli, the head of Greece's biggest bank, said that it would be "insane" for the two sides not to conclude a deal.
Mr Tsipras, elected on a pledge to end austerity, has defiantly resisted demands to cut pension spending. But Greek officials have suggested Athens may be willing to consider raising value-added-taxes or other levies.
"There is no time to lose. Every day counts. Talks and negotiations must continue so that an agreement is reached," Mr Hollande said.
Locked out of bond markets and with bailout aid frozen since summer last year, Athens is quickly running out of cash. The deputy finance minister insisted yesterday that Athens had enough money to pay public sector wages and pensions this month.
But Greece also urgently needs access to funds to avoid defaulting on a €1.6bn IMF loan that falls due at the end of the month. As the crisis gets pushed from one meeting to the next, each side has put the responsibility on the other's shoulder for finding a deal.
Money has drained out of Greek banks after a breakdown in talks last weekend, and Greece might have to impose capital controls within days if there is no breakthrough.
Sources in Frankfurt and in Brussels said the European Central Bank's board would discuss the liquidity of Greece's banking sector this morning. The sources said Greek pre-orders for deposit withdrawals today had already reached €1bn - after savers pulled over €4bn out of their banks last week.
European ministers have played down the prospect of a final agreement today but hope a political understanding can be reached in time for a full deal by the end of June.
For a deal to work, Mr Tsipras will need a solution that is acceptable to his party or else may be pushed to call a snap election or a referendum to secure a mandate for an agreement.
The Greek government has argued the austerity imposed on the southern European country had made the crisis worse. A senior Syriza politician said yesterday that previous ideas put forward by the EU would have led to a "social Holocaust".
"Democracy cannot be blackmailed, dignity cannot be bargained," Syriza said in a statement.