Little space for compromise between Athens and eurozone

The onward march of the Front National in France and the implosion of France's Socialist Party seems to have been arrested, at least temporarily, with the election of the socialist candidate in a parliamentary by-election in Doubs in eastern France.

The margin of victory of the PS's Frederic Barbier over the FN's Sophie Montel was slim - 51.4% to 48.6%, a difference that hardly shows a resurgence in popular support for France's political establishment.

But it will reinforce the confidence of Francois Hollande - whose popular approval rating has doubled to 40% since the Charlie Hebdo atrocity - that he can withstand the bulldozer demolition of France's elite by the FN's Marine le Pen in the presidential elections of 2017.

Right now the place where this result may be most significant is in Athens, and for the Syriza government led by Alexis Tsipras, because it shows that eurozone leaders' defiant refusal to give in to his demands for an end to austerity and an easing of Greece's debt burden has not done them collateral damage. There has been no apparent boost for another populist party (albeit a right wing one) in France.

So there is little reason to assume that when eurozone finance ministers and government heads meet on Wednesday and Thursday respectively to discuss the Greek crisis, they will be any more likely to compromise with Mr Tsipras.

Which implies they will reject his main demand, for withdrawal from the formal bailout and the extension of a bridging loan of a few billion euros for four or five months - to allow negotiations on the reconstruction of Greece's debts and economy in a less turbulent and fraught climate.

And if other eurozone governments, led by Germany, Spain and Finland, look unbending and intransigent, so too does Mr Tsipras.

In a speech to parliament, he yesterday said he would honour the pledges he made to the Greek electorate that secured Syriza its victory - including a number of policies which are anathema to Berlin, such as a 28% increase in the minimum wage by 2016, the rehiring of lower-paid civil servants (such as school guards, university admin staff and finance ministry cleaners), and formal withdrawal from the terms of the rescue he inherited.

Alexis Tsipras in the Greek parliament yesterday

Some of the other reforms he wants, such as cracking down on tax evasion and endemic corruption, would be seen as perfectly sensible in other eurozone capitals.

And quite frankly I am hard pressed to find a serious economist who does not believe that an easing of Greece's crippling debt burden and a less hairshirt approach to austerity would be anything other than sensible.

Added to that, there is polling data, which shows that the new government's popularity has soared since it started a charm offensive around the eurozone that morphed into something of a punch-up.

So it is difficult to see how either side moves enough for a deal to be done in the coming days. Tell me if I am missing something important please.

So the risk of Athens running out of money, of defaulting, which was not trivial last week, looks like a fairly big iceberg looming in front of us.