As rumour and denial swirl around the markets regarding outside financial help for Greece, Goldman Sach’s European economist Erik Nielsen has been looking into the bank’s crystal ball.
And this is what he sees:
* Wednesday, Febr 10:
PM Papandreou meets with French president Sarkozy. Topics will include a host of non-economic issues, but I am pretty sure that Sarkozy will convey a message of general support, and insist that the Greek issue will be handled inside the EU with no involvement by the IMF. (If there was any doubt before, then IMF head Srauss-Kahn’s suggestion a few days ago on French TV that he might return to run for president would surely have increased Sarkozy’s incentive to keep him away from Europe.)
* Thursday, Febr 11:
EU summit in Brussels starts at noon.
Officially, the agenda includes (1) a discussion of Europe 2020 (that’s the dream of Europe becoming the world’s most productive economy); (2) follow-up to Copenhagen (question to be answered: How did it all go so wrong for us Europeans?); and (3) coordination of help to Haiti.I understand that at least until a couple of days ago, EU president Van Rompuy did not want to include Greece on the agenda in spite of the request from several heads of state, but the fact that Trichet left Australia early to join the summit must mean that they now plan to discuss Greece.
Since this is an informal summit, there is no tradition for issuing a statement afterwards, but I think we can expect something Thursday late afternoon or evening. The statement will likely call for the Greek (and other) governments to do what they need to do to regain the market’s confidence, and it remain silent on financial help.
In other words, I would be very surprised if they announce on Thursday a rescue package; how could they before the Greeks have spelled out the latest measures, demanded by the Commission?. At best, we’ll get a reference to Article 122 that says that they could do something for a country in exceptional circumstances. But no commitment at this time.
February 14-15:
Ecofin meets to formally endorse the Commission’s assessment and recommendation of the Greek budget and promises of further action (see their statement from last Wednesday).
* Around Febr 22:
The Greek press has suggested that the government will try and issue a 10-year bond to raise sufficient funds to get through April and May. Rumours continue about a possible private placement as well.
* March 10:
EUR1.65bn in coupon payments.
* March 15:
Deadline for the Greek government to spell out the implementation deadline for the additional measures announced last week, including the public sector wage bill, excises on fuel and the pension reform.
* Second half of March:
If the government has not been able to raise the necessary funds in late February, then this would be the most likely period for the Euro-zone governments to implement Article 122 and disburse the suggested EUR20bn to the Greek government. I suspect that the money would be relatively short term (less than a year).
* April 10:
EUR8.5bn in redemptions and coupons
* May 10:
EUR10.8bn in redemptions and coupons.
My bottom line remains the same that disbursement will be conditional (but it will be made available).
Now, for those of you wondering what Article 122 of the Lisbon Treaty is, it provides the opportunity for help to be provided for a member state:
Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned.
In other words it is clear from the Lisbon Treaty that support for Greece can be forthcoming if the rest of the region decides to help. Which brings us to the next question – what form might this assistance take and what strings will be attached?
Nielsen reckons it will be a €20bn disbursement, while the Wall Street Journal is going for loan guarantees:
Germany is considering a plan with its European Union partners to offer Greece and other troubled euro-zone members loan guarantees in an effort to calm fears of a government default and prevent a widening of the credit woes, people familiar with the matter said.
EU leaders are expected to discuss the situation at summit in Brussels on Thursday. A final decision on the plan may not come this week but Germany has concluded that guarantees are likely the most efficient way to prevent the spread of the debt crisis, a person familiar with the matter said.
Although, JPMorgan’s David Mackie reckons such a move might be premature and for a very good reason:
There are stories circulating today that an area-wide package is being prepared. In our view, such a move by the rest of the region would be premature. The financial market pressure is still fairly limited, and hardly any of the fiscal plans have been passed into law by parliaments let alone fully implemented. If the rest of the region stepped in this early, the risk is that fiscal discipline will not be restored on any reasonable timescale.
Quite.
Related links:
Berlin looks to build Greek ‘firewall’ – FT
Europe’s stragglers need German consumers - Martin Wolf