Ceasefire With Russia, No Deal On Greece

A ceasefire in Ukraine appears to have been reached, and despite some confusion late yesterday, no compromise has been struck over the new Greek government’s demand that it is recognized that the previous agreements are not working. However, that may give a false sense of what is the more intractable problem.  

Greece and European officials think they are both in a strengthened negotiating position. Greece’s primary budget surplus, the electoral victory, and the principle that monetary union is irreversible emboldens the new government. European officials recognize that the monetary union is better prepared to deal with a Greek exit. There are backup facilities that did not exist in 2010, and the financial system is widely perceived as stronger.  This has encouraged both sides to adopt brinkmanship tactics. That means that negotiations have to be extended to the last minute of nearly so.  

Some observers insist on framing the issue in terms of blinking or compromising.  Greece has already backed down from its initial demands.  Europe has yet to more at all. A compromise means both sides have to move. Otherwise it is not a compromise, but a capitulation. The classic example is the Cuban Missile Crisis. Russian ships did turn back, and the missiles in Cuba were dismantled. That is where the story many Americans tell ends. However, quietly JFK removed missiles from Turkey. 

In any event, the ceasefire in Ukraine is a necessary, but insufficient step to avoid further escalation.  It is not a comprehensive agreement. Greece and European logjam is ultimately over tactics and the tug-of-war between creditors and debtors. Russia is a revisionist power in the sense that it wants to change the world order. It continues to occupy parts of Georgia and supports a breakaway region in Moldova. The underlying principle is strategic.  

Outside of Greece and Ukraine, there are five other drivers today. First, weaker than expected Australian employment data has increased speculation of a rate cut next month. Speculation has also increased for an additional cut in Q2. The unemployment rate rose to 6.4% from 6.2%, even though the participation rate was unchanged. Australia lost 28.1k full time positions after gaining 46.4k in December. Part time positions increased by almost 16. The Australian employment data is particularly volatile, and although the market may be exaggerating its importance, we agree with the general direction. We expect additional rate cuts.