Kathimerini reports this morning that Alexis Tsipras is preparing another set of proposals ready for the next summit meeting with Angela Merkel and François Hollande on Wednesday;

Another summit, another Greek plan Kathimerini reports this morning that Alexis Tsipras is preparing another set of proposals ready for the next summit meeting with Angela Merkel and François Hollande on Wednesday; It is far from clear whether these proposals go anywhere near satisfying creditor demands – the reports mentions some shifts within the VAT regime, the acceptance of a higher primary surplus target, and a possible increase in health insurance payment for pensioners; Jean-Claude Juncker let it be known that he refused to take a call from Tsipras, and says there is no point in further discussions until the Greeks make a new proposal; In Germany, meanwhile, the mood is darkening, as Tsipras is now losing his friends on the centre-left – as evidenced by Martin Schulz’ outburst that the Greeks were getting on his nerves; There is increasing support for Grexit among CDU MPs, especially those representing German SMEs; Frankfurter Allgemeine quotes Donald Tusk as saying that the creditors’ position still contains some flexibility, on pensions for example, but they insist that any changes would have to be bottomline-neutral; Macropolis writes that the Greeks will legislate the new labour market framework agreed with the ILO, against the wishes of the creditors; Silvia Merler argues that ECB bond redemption is the really hard deadline, and time is fast running out for an agreement to be reached, and the money disbursements to be approved; Wolfgang Munchau says both the Greeks and the creditors’ proposals are unworkable – Tsipras missed a trick by not presenting a more honest and internally consistent proposal of his own; Hugo Dixon writes that Tsipras should dump the lefties in his party, and call elections (we leave the reader to speculate on how helpful Tsipras would find such advice); Further News François Hollande emerges stronger from party congress at Poitiers; harsh attack only came in an op-ed from Arnauld Montebourg who accused the government of absurd conformism to Brussels and delivering votes to the FN; Françoise Fressoz writes that Valls now looks more like an extension of Hollande than a minority view in the party; Cecile Cornudet writes the battle between Hollande and Sarkozy has begun, both relying on strategy over content to increase their chances to get into the second round in 2017; Danièle Nouy tells Welt am Sonntag there will be general and targeted banking stress tests in 2016; she reassured that Greek banks remain solvent and liquid, and praised the work of Greece's supervisors; Nouy did not deny the possibility that the ECB Council and the Supervisory Council, being independent from each other, might disagree on the solvency of an institution; El País' general election poll shows the PP in first place for the first time since last Summer, within the margin of error with PSOE, second, and Podemos third; Ciudadanos appears to be deflating; we suspect tactical voting on the right is making Ciudadanos and its popular leader lose support to the PP with the unpopular Mariano Rajoy; the Commission are planning to introduce regulation on the commodities markets, including position limits and capital requirements, according to preliminary plans; A group of 50 Tories MPs, meanwhile, has formed a pro-Brexit pressure group, Conservatives for Britain, which aims to campaign for a No vote in a British EU referendum. It looks very much like Athens is poking the slumbering bear. Just after Alexis Tsipras called the proposal of the creditors “absurd” and “irresponsible” he has gone back to the drawing broad – which happened after Angela Merkel and Francois Hollande called him once again. Ahead of their next meeting on Wednesday, on the fringes of the EU/Latin America summit, he is preparing a new set of proposals that aims to close some of the gap with the creditors – but as far as we can ascertain from the report in Kathimerini, this will probably not address their concerns. Tsipras is willing to offer a slightly higher primary surplus than previously suggested, and is willing to make some amends to his VAT regime – for example pushing some, we presume luxury, food items into the higher rate band of VAT. The government may be considering an increase in the health insurance premium on pensions, which could raise €500m. In the meantime, the mood among the creditors, notably in Germany, is darkening. The best anecdotal example of this was Martin Schulz’ appearance in a German TV talk show during which he said that the Greeks “are getting on my nerves”. And he raised the pressure on them in another direction. “An exit from the eurozone implies an exit from the EU”. (We are not sure that this is true, nor are we sure that it is necessarily helpful). Handelsblatt reports that the mood within the CDU/CSU is turning anti-Greek very fast. The paper quotes a CDU MP, and spokesman for the SME faction within his party group, as saying that the European government have to realise that the experiment with the Greeks has failed, and needs to be ended. Grexit would benefit the eurozone because credibility would return. The article quotes other CDU MPs as saying essentially the same. Tsipras not only lost Schulz as an ally, but also Jean-Claude Juncker, whose minions went public on Saturday to announce that the president refused to take a phone call from Tsipras. He was clearly annoyed by Tsipras’ extraordinary remarks in the Greek parliament on Friday evening. He said during the G7 meeting yesterday there was nothing to talk about until Tsipras makes new proposals. Frankfurter Allgemeine reports that the creditors’ proposals still contain some flexibility on pensions. It quotes Donald Tusk as saying that the creditors are happy to exempt poorer pensioners from the cuts, but would require counter-financing proposals elsewhere. The German chancellery considers the deadline to be end-June, and there is already talk about extending the programme (and thus the space for further negotiations if the deadline is not met, which means it is not really a deadline either). Macropolis writes that the labour market framework agreed between the ILO and the Greek government will be legislated in any case, despite the creditors’ disapproval. Macropolis also notes that in his speech to parliament where Tsipras called on the opposition to support the Greek proposal, he was trying to split the opposition parties, and neutralise their criticism. But that did not work. ND, Pasok and To Potami instead want a national negotiation team, i.e. not the Greek government on its own, to handle the process. At Bruegel, Silvia Merler has a useful summary of the key differences that need to be bridged between Greece and its lenders. She concludes that a compromise is not yet in sight. The Greek proposals for a debt restructuring, as leaked to the FT on Friday, added a further complication to the negotiations, since this will not be negotiable in such a short period of time. Given the hard deadline of the ECB bond redemption in July, and the uncertainty over how long it will take to get the money approved, it is clear that time is running out. Wolfgang Munchau writes in his FT column that he finds both the creditors' and the Greek proposals unacceptable, for different reasons. The creditors’ proposal is indeed absurd as it piles on additional austerity in the middle of a recession – as though they have not learned a thing from the experience of the last five years. But the Greek proposal is not better. It is disingenuous by essentially accepting the creditors' primary surplus targets without backing them up through fiscal measures. What Tsipras should have done instead is to claim the moral high-ground, get a team of internationally renowned economists to draw up a plan that foresees genuine reform, realist fiscal adjustment, and debt restructuring. It would still be rejected, certainly initially, but a good plan might have split the creditors. Munchau still thinks that Grexit is not a good option, but if this is where it ends up, it would be better if it happened sooner. Hugo Dixon, writing in the New York Times, said Tsipras’ choice is between saving his country or sticking with a “bankrupt far-left ideology”. The smart way forward is to secure a few more concessions from the creditors, and then capitulate. That may split his party, but he could call new elections, kick out the rebels and probably win a fresh mandate with an increased majority. Without a deal, Greece would end up in bankruptcy, and Mr Tsipras would be hounded out of office. On the new proposals: The Kathimerini article does not contain many details, but based on those it does contain they do not appear to bridge the gap. For Greece to achieve a primary surplus even of 0.6% this year – let alone a higher number that Tsipras may be willing to concede – would require a brutal fiscal adjustment in the next six months – coming from a primary deficit right now. Such an adjustment is hardly feasible without further expenditure cuts, which is the only certain source of income. The creditors are willing to make concessions only in terms of the composition of fiscal savings, but they are not accepting eccentric tax proposals. We think it is much worse to have a proposal that does not add up than a proposal that adds up to a different headline number. Tsipras should say that he does not agree with the primary surplus, and present a plan that is internally consistent. On Dixon: Why should Tsipras win an enlarged majority if he were to go into an election campaign with a divided party? This is a dynamic that opinion polls cannot easily capture. For this strategy to work, Tsipras would have to split his party formally, form a new party, or party alliance, and enter into an election campaign with that group. How can this conceivably work, given the deadlines? Also, is it really all that clear that the Greek electorate would blame Tsipras for a Grexit? It seems to us that the whole purpose of the Greek government’s strategy is to pass the blame for a Grexit on to the Troika. Hollande reenforced at party congress The French Socialists held their party congress in Poitiers over the weekend. The starkest critic was not voiced there but outside byArnaud Montebourg, who wrote an article in the Journal du Dimanche together with the businessman Matthieu Pigasse. The article attacks the government as marching right into disaster and threatening democracy itself. They accused the government of “absurd conformism to Brussels” and of delivering votes for the Front National. At Poitiers, this attack was dismissed as a sideshow, a personal revenge of Montebourg, though it got some cheers from the party rebels. The main tenor at Poitiers, though, was a reinforcement of Francois Hollande's leadership, with his only real rivals, Martine Aubry an Manuel Valls, keeping silent. Francois Fressoz in Le Monde writes that Manuel Valls is no longer seen as in a minority inside the party, with a discourse that promises more of an extension of Hollande than a rupture (the only criticism of exceptionalism was for flying to Berlin to watch his “home” team Barcelona playing Juventus).  Cecile Cornudet in Les Echos compares the Socialists’ congress with the Republican congress the weekend before, saying that the two leaders, Francois Hollande and Nicolas Sarkozy, already prepared a pre-campaign with two opposite roles: Hollande risks losing everything but is the only one in his camp to take up the fight; while Sarkozy has every chance of winning, but is contested internally. Both men are quite similar in their strategic choices, though. With the Front National high in the polls they are calculating that if only they can make it into the second round in 2017, the victory will be theirs. Renewed ECB stress tests to take place in 2016 In an interview with Welt am Sonntag, Danièle Nouy confirmed that another round of general banking stress tests will take place in 2016, though she indicated that it might involve fewer than the 123 banks the SSM currently supervises. There may also be smaller scenario analysis exercises targeted at specific risks. Nouy reassured the paper that Greek banks remain both solvent and liquid, praising the work of Greek supervisors over the past years. On the separation of monetary policy and supervision Nouy stressed that the ECB Governing Council makes its monetary policy decisions based on its own determination of bank solvency, independent from the SSM's determination. When pressed on what would happen if the two institutions disagreed on the solvency of an institution, she refused to "answer hypotheticals". There is apparently some debate in Germany over the need for stronger separation between the monetary policy and supervisory functions, but Nouy does not think it necessary. Is the PP bouncing back? An election poll by Metroscopia for El País shows the ruling People's Party in first place in estimated vote share for the first time since last summer, at over 24%. The PP is in a virtual tie with PSOE 23% and Podemos (under 22%) as the three are within the standard margin of error of 3%. Ciudadanos, on the other hand, is deflating about a third down from its peak, to 13%. The smaller parties IU and UPyD continue their decline, with IU just above 4% while UPyD polls below 0.5% and seems on its way to disappearing. The interpretation that the PP is growing out of Ciudadanos does not add up - there must be some flow of voters to/from abstention and other parties, particularly considering Ciudadanos' leader Albert Rivera has the best approval ratings of any leader. There is possibly a measure of tactical voting on the part of right-wing voters scared by the recent PP rhetoric warning against a "radical left" alliance including the PSOE, as the PP share rises while its leader Mariano Rajoy has dismal approval ratings even among PP voters, 50% of whom would like to see a different candidate. A word of caution: given the Spanish electoral system with 50 mostly smallish constituencies using the d'Hondt method, a "statistical tie" may well translate into over 30 seats difference between the first and the third parties. Commission plans new regulations on commodity trading The Commission are planning to further the spread of regulation in financial markets - this time to commodities. According to a Reuters story the new rules will introduce regulations through the Markets in Financial Instruments Directive (MiFID) that force commodity firms which were previously exempt to hold capital reserves, while placing position limits in the market. The industry lobby warns that an ill designed policy would push commodities trading out of Europe and into the Asian markets, sapping liquidity from the eurozone. Whether this will happen will depend on details of the plans to be released in September, with possible exemptions still on the table, and which instruments the rules will encompass, for example whether forward contracts including gasoline or wheat will fall under new brief. MiFID II comes into force in January 2017. What Cameron will be up against As the probability of Grexit rises, so does the probability of Brexit. The Sunday Telegraph reports that more than 50 British Tory MPs are planning to join a group called Conservatives for Britain, a Brexit advocacy group, unless David Cameron will come back with real changes in Britain's relations with the EU - which of course he will not. The organisers of the campaign said they are confident that their membership number will rise to 100, about a third of the number of Tory MPs. The latest polls - for what they are worth - have turned more pro-EU (ICM 59-41%). But those polls tell us nothing about the political dynamics that may unfold if Cameron comes back with a fudge or, worse, if he himself were to recommend a No vote. Eurozone financial data 10y spreads Previous day Yesterday This Morning France 0.306 0.325 0.323 Italy 1.316 1.487 1.484 Spain 1.282 1.382 1.405 Portugal 2.026 2.124 2.152 Greece 10.129 10.631 10.57 Ireland 0.747 0.810 0.845 Belgium 0.311 0.333 0.343 Bund Yield 0.833 0.851 0.854 exchange rates Previous This morning Dollar 1.126 1.1113 Yen 140.490 139.42 Pound 0.735 0.7277 Swiss Franc 1.050 1.0457 ZC Inflation Swaps previous last close 1 yr 0.97375 0.9819 2 yr 0.9725 0.989375 5 yr 1.11 1.1275 10 yr 1.42125 1.434375 Eonia 05-Jun-15 -0.12 04-Jun-15 -0.14 03-Jun-15 -0.14 02-Jun-15 -0.12 OIS yield curve 1W -0.115 15M -0.080 2W -0.080 18M -0.080 3W -0.090 21M -0.060 1M -0.090 2Y -0.056 2M -0.090 3Y 0.015 3M -0.100 4Y 0.154 4M -0.100 5Y 0.287 5M -0.100 6Y 0.434 6M -0.100 7Y 0.573 7M -0.100 8Y 0.703 8M -0.100 9Y 0.818 9M -0.090 10Y 0.924 10M -0.090 15Y 1.256 11M -0.090 20Y 1.389 1Y -0.090 30Y 1.455 Euribor-OIS Spread previous last close 1 Week -4.643 -3.643 1 Month 3.400 2 3 Months 8.443 8.643 1 Year 27.829 26.429 Source: Reuters