Greece and Varoufakis need supporters not sympathisers

The Greek finance minister has achieved little on his whirlwind grand tour of Europe and time is running out
Yanis Varoufakis (eight) speaks with Wolfgang Schäuble in Berlin.

by Nils Pratley
Thursday 5 February 2015

What has Yanis Varoufakis, Greece’s finance minister, achieved during his grand tour of European capitals this week? Not much. He has collected a few rave reviews for his dress sense and sounded a model of sweet reasonableness in his press conferences. But on the substance?

Yesterday in Berlin Wolfgang Schäuble, Germany’s finance minister, said Greece’s European partners had already gone as far as they would go on debt relief. He invited Athens to help itself. Varoufakis was left in the odd position of disputing Schäuble’s assertion that the pair had agreed to disagree.

Over in Frankfurt, the European Central Bank cranked up the pressure on Greece by yanking its banks’ access to cheap funding: Greek government bonds will no longer be accepted as collateral.

The banks can still get emergency liquidity by going through Greece’s central bank. But they will pay a higher rate of interest for that dubious privilege. What’s more the central bank’s ability to keep the funds flowing is not endless because the ECB can impose limits.

The message behind the ECB’s decision seemed clear: we will play hard; we are not about to change our rules of engagement; the time for Greece’s new Syriza government to face reality is fast approaching.

Indeed, the end of this month now looms as a real, and dangerous, crunch-point. Syriza has said it wants to exit the bailout programme and argues for a three-month bridging loan to allow time for negotiations. The message from Shäuble was a firm no to the loan. A stand-off between Syriza and the eurozone powerhouses was always in the offing but the positions are now stark. Something has to give here – and quickly.

In a rational world, a bridging loan would be an excellent idea. Attempting to resolve the Greek mess via brinkmanship in the space of three weeks is madness. Remaining depositors in Greek banks will be fleeing. Varoufakis’s plea for “space for all of us to come to an agreement” sounds no more than common sense. Extending finance to Athens until the end of May would not cost much. If the ECB is restricted by its mandate, politicians could always find a pragmatic fudge; they have done so many times in the past.

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But that is not the way the winds are blowing. Even François Hollande in France and Matteo Renzi in Italy called the ECB’s move legitimate and said it was a way to force agreement. The eurozone’s big beasts seem determined to force a quick resolution, rather than accept Syriza’s timetable.

Optimists might reflect that Germany, as a negotiating tactic, was always going to make the threat of Grexit, or Greece’s exit from the euro, feel real. Does Germany really want to be seen as responsible for driving Greece out of the eurozone? Probably not. But the pressure being applied on Syriza is hard and has arrived, courtesy of the ECB, earlier than expected.

Varoufakis has won a few sympathisers on his tour of capitals. What he and Syriza need, however, is out-and-out supporters within the eurozone. They haven’t collected any yet.

Deal may be canned
In the exciting world of aluminium cans, it would be a revolution. Ball Corporation of the US, the biggest operator, wants to buy our own Rexam, the second biggest, for £4.2bn, or 610p a share, of which two-thirds would be paid in cash. The proposed price is about 40% above the old share price so you can understand why Rexam’s board is talking.

How on earth, though, do the pair hope to get this deal past competition regulators? The combined share of the global market would be about 42%. In North America, Europe (excluding Russia) and Brazil they would have about 70%, calculates Jefferies’ analyst. Very few industries are allowed to consolidate to that degree.

Rexam and Ball might point out that customers look pretty consolidated themselves. The top-end of the international beer market is a carve-up between Anheuser-Busch, SAB Miller and Heineken. Coca-Cola and Pepsico have a more than decent slug in fizzy drinks. The would-be brides might also plead that these global titans want similar global suppliers to make the supply chain more efficient.

Well, they are arguments. But they would sound more persuasive if Ball and Rexam were suffering under the cosh of the mighty multinationals and needed to combine to survive. That is definitely not the case. Ball’s share price has been on a tear – it has climbed from $40 to $70 in the past three years. Rexam makes a 15% return on capital. There doesn’t seem to be a shortage of cash to fund investment.

The duo are, of course, free to try their luck with the various regulators. But, at first inspection, this deal just looks anti-competitive.

No steal for BT
A 4.5% share price improvement for BT on confirmation of a deal that had already been announced looks odd. The £12.5bn price-tag for EE hasn’t changed one penny.

The excitement, it seems, lies in the cost savings. They will be £360m a year, promised chief executive Gavin Patterson, to which he attaches a “net present value” of £3.5bn. Deduct that from the headline price and, yes, the purchase doesn’t look as expensive as it did on day one.

Even so, this is no steal for BT. The return on investment – perhaps the best guide – will exceed BT’s capital in the third year, all being well. EE’s owners, Deutsche Telekom and France Telecom, have done OK.

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