By Andrew Jay Rosenbaum and Magda Paoutsopoulou
ANKARA / ATHENS
The euro dropped about 3 percent against the dollar to a two-week low on Thursday, as fears of a Greek government default on its debt hit the common currency. The Turkish lira also gained slightly against the dollar, moving to about 2.57 to the greenback on Thursday from about 2.60 on Wednesday.
But the dollar lost strength after the Federal Reserve released the minutes of its meeting in April, at which Monetary Policy Committee members largely agreed that an interest rate rise in June would be premature.
The euro dropped from about 1.14 against the dollar on Monday to about 1.11 on Thursday, as Greek government officials warned that the country could not make its next €300 million ($339 million) debt payment to the International Monetary Fund, which is due on June 5.
But it held at that level after the Fed minutes were released late on Wednesday. Most of the Monetary Policy Committee members “thought it unlikely that the data available by June would provide sufficient confirmation” that stronger growth had returned.
Fed waits for upturn
The Fed minutes showed that committee members expect the American economy to turn back up from its poor performance in the first quarter. The Fed will raise rates when they have seen further improvement in employment numbers, and when they are confident that inflation will move back up toward the two percent target. A report on initial claims for unemployment benefits is due late on Thursday.
The minutes also show concern about relatively low levels of consumer spending in the U.S.
Greece nearly out of cash
Analysts said the euro's decline against the dollar was largely due to concerns about a possible Greek government default.
Nikos Filis, a member of the SYRIZA party, and the Greek parliamentary speaker, said, in an interview with ANT1 television, that the Greek government would not make the payment due to the IMF on June 5 unless a part of the next €7.2 billion ($7.81 billion) bailout tranche was made available.
"If there is no deal by then that will address the current funding problem, they won't get any money," Filis said.
Filis also warned that the bailout agreement currently being negotiated with Greece's European creditors, would not get through parliament.
On Wednesday, the European Central Bank's Governing Council approved a €200 million ($222 million) increase in Emergency Liquidity Assistance to Greek banks, which are entirely dependent on these loans to continue operations.
But the move will not keep the banks up and running for long.
Deposit outflows, according to the Greek central bank, are at close to €2 billion ($2.2 billion) a week. This means that Greek banks will have to close down at the end of June, unless further arrangements are made.
Greek Prime Minister Alexis Tsipras is meeting with the European creditors in Riga, Latvia on Thursday, to try to advance the bailout negotiations. On Monday, Greek Finance Minister Yanis Varoufakis said a deal could be closed in a week, but a spokesman for the EU said that outcome was unlikely.
Sticking points in negotiations
Separately, on Monday, proposals for the shape of Greek economic reforms were made by experts at The Emergency Economic Summit for Greece in Athens. Proposals addressed some of the key sticking points in the current bailout negotiations.
Kyriakos Mitsotakis, former minister of administrative reform with the previous Greek government, said expenditure in the public sector decreased by $24.5 billion to an estimated $15.3 billion in 2014, under the previous Greek government. He warned against SYRIZA's plans to re-employ public employees who had been laid off in spending reductions.
Nicholas Economidis, a professor of Economics at the Stern School of Business at New York University, called for “rationalizing the pension system, measures to combat corruption and increase transparency in public procurement, opening of the closed sectors of the economy and promotion of privatization especially in the areas of railways, airports, ports and energy and finally labor market liberalization.”
Warren Coats, a former assistant director of the IMF, added that “Greece’s long term clientelism severely stifled its economic productivity. Political patronage and other inefficiencies in government contributed to high government spending but low quality of government service, thus reducing the Greek economy’s productivity.“
In the current bailout negotiations, the Greek government has called public sector employment and labor market deregulation "red lines which cannot be crossed."
