By Mike Peacock
LONDON (Reuters) - The threat posed by Greece beyond its borders may have diminished but efforts to agree an economic reform program to free up bailout funds and avert default will capture world attention this week.
Euro zone finance ministers meet in the Latvian capital Riga on Friday with both sides saying time is running short to keep Greece afloat. But with Athens yet to produce a program of reforms that is deemed acceptable, there is little confidence they will pull off a deal.
Germany said last week it was unrealistic to expect euro zone countries to be able to pay out a new tranche of aid this month.
"No one has a clue how we can reach agreement on an ambitious program," Finance Minister Wolfgang Schaeuble said.
Greek Prime Minister Alexis Tsipras, elected on a promise to end austerity, is balking at politically sensitive reforms of the pension system and labor markets and a privatization program to which his predecessor had agreed.
Athens is dangerously close to running out of cash.
Officials told Reuters it will need to tap all the remaining cash reserves across its public sector -- a total of 2 billion euros -- to pay civil service wages and pensions at the end of the month.
Without a deal in Riga, Athens could soon be forced to choose between making those payments or meeting upcoming debt bills. Greece must pay almost 1 billion euros in May to the International Monetary Fund, which has made clear it will accept no delay.
"We now put a 40 percent probability on a Grexit, coupled with a sense that this is still rising with no clear sign of a reversal," Nomura senior political analyst Alastair Newton said.
"The main reason is what we see as the continuing propensity for rhetoric not just to dominate, but to overwhelm substance in the exchanges between Greece and its euro zone partners."
SHIFTING SANDS
Soft economic indicators in the United States and China last week buoyed financial markets, with a weak Chinese GDP reading boosting expectations of monetary stimulus by Beijing while lacklustre U.S. data dampened prospects of an early interest rate hike by the Federal Reserve.
The International Monetary Fund said a surging dollar -- and weaker euro and yen -- should help the global economy by boosting Japan and Europe, where growth has been weak.
In its World Economic Outlook, the Fund kept its global growth forecasts unchanged, with faster expansion in the euro zone and India offset by diminished prospects in other key emerging markets such as Russia and Brazil.
The latest evidence of the global state of play will be provided by flash April purchasing managers surveys for the United States, China, the euro zone, Germany and France.
With the money-printing presses turned on full by the European Central Bank, euro zone prospects are gradually starting to turn up.
"We believe that the combined stimulus from low oil prices, weaker euro and easing credit conditions in the periphery will support steady, above-potential expansion at a pace of approximately 2 percent annualized," economists at Unicredit (MILAN:CRDI) said in a note.
Emerging markets have certainly felt a squeeze from the dollar's rise.
Turkey's central bank meets on Wednesday and is still under political pressure to cut interest rates more dramatically despite high inflation and a tumbling currency which hit a record low this week.
Investors are worried about political meddling in monetary policy, the make-up of Turkey's economic team after June elections and the possibility that the ruling AK Party may not be able to form a government on its own.
Hungary has the opposite problem -- a strong currency -- so its central bank is expected to trim interest rates by a further 15 basis points to a new low of 1.8 percent on Tuesday, responding to sub-zero inflation and a buoyant forint.