Here is an earnest, but very strange, document. Click to read.
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Remember the Comprehensive Assessment? You know, the European Central Bank’s report in October 2014 that said three Greek banks were adequately capitalised to survive a stressed scenario thanks to their fundraising efforts earlier in the year, while the fourth was only off by five basis points?
We ask because the ECB seems to have forgotten. Otherwise, we can’t think of why the euro area’s central bank is choking off Greek lenders and effectively forcing the Greek government to impose capital controls. (Immense thanks to Karl Whelan for making this point at our panel at Camp Alphaville.)
To see the oddity, it helps to explain what central banks are for. Read more
This belief — that an implicit official sector guarantee has quietly settled over every sovereign debt instrument issued by every geopolitically significant country on the planet — is a fallacy. The moral hazard implications of allowing this idea to prosper are staggering. More importantly, the official sector lacks the resources to make good on such an implicit guarantee, even if it wanted to do so.
– Lee Buchheit, ‘Sovereign fragility’, 2014
Coming home to roost now though, isn’t it? Read more
We too can rip up our promised programme to respond to the evolving wants and desires of the Camp Alphaville polis.
As of pixel time, Wednesday’s “The Untouchables: The Saga of Weird Emerging Market Sovereign Bonds” debate becomes the “Last minute Greek emergency session” panel — to be moderated by our resident sovereign default expert Joseph Cotterill (who also doubles up as the FT’s private equity correspondent).
Joseph will be joined by:
Courtesy of Tradeweb, a summary of the Greek bond yield action this Monday:
Yields on the 10-year Greek government bond surged to their highest levels since November of 2012, according to data from Tradeweb. The bid yield on the 10-year Greek bond closed at 15.429%, the highest yield since November 30, 2012, when it closed at 16.262%. Today’s closing yield was up 462 bps from the close on Friday at 10.814%. This is the largest one-day yield increase since Tradeweb began trading Greek government bonds in November of 2001. The next closest one-day move by order of magnitude was on March 7, 2012, when the 10-year bond surged 388 bps amidst the Greek debt swap to avoid default. Read more
The writer is chief economic adviser to Allianz and chair of US President Barack Obama’s Global Development Council
Sensing that this could be “history in the making” for Greece and for Europe, I decided a few weeks ago to keep physical copies of the FT (yes, I still get a physical copy!). While the inside of the paper contained rich reporting and comprehensive analysis, the headlines on the front page ended up providing a great feel for what transpired in this horrific tragedy. Read more
We’ll be slamming up the best of our collective inbox on matters Greece as and when the good stuff pours in.
Catching up on the last few hours, here’s JP Morgan’s Greg Fuzesi:
In light of the deepening crisis in Greece, a key question is how the ECB will respond to any signs of contagion to the rest of the Euro area. At the end of today’s policy statement about the ELA decision, the ECB said that “the Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area.” The ECB added that “the Governing Council is determined to use all the instruments available within its mandate.”
For the latest on the ECB’s liquidity position on Greece, see our post here.
Meanwhile, here’s some instant analysis by way of the FT Alphaville collective inbox:
After that late-night announcement in Athens of a July 5th referendum, the response on Saturday…
In one sense, Greece’s full membership of the euro is, quite literally, already being consigned to the footnotes of history.
You may have thought this was just a car…
And we don’t know what that means… Updated with:
While 11am has passed, EU official says talks still ongoing and papers still being exchanged. #Greece
— Peter Spiegel (@SpiegelPeter) June 25, 2015
And from earlier this morning:
Greece is down to its final hours for negotiations over its soon-to-expire bailout, with creditors giving Alexis Tsipras, the Greek prime minister, until 11am Brussels time to come up with a workable compromise economic reform plan to release €7.2b in desperately needed rescue aid…
From Spiegel and crew in Brussels, the creditors’ counterproposal to Athens featuring lots of red ink. Click through for the full thing:
In this guest post, former IMF staffer Peter Doyle argues that in pushing for pensions, VAT and labour reforms, creditors are only stoking the latent explosiveness of Greece…
Troika-Greek negotiations are reportedly down to the wire over early-retirement pensions, VAT, and labor reforms: the IMF says all are non-negotiable; Tsipras, perhaps inadvertently echoing Mrs. Thatcher, has, so far, responded “No! No! No!”
These three issues converge on those at the upper end of their working lives, the 50-74 year old cohort, and are reflected in its participation and unemployment behavior. So it is worth considering data on those and the associated implications for the negotiations. Doing so suggests that these creditor red lines lack foundation. Read more
It really is crunch time folks. Or at least, it’s a crunch time. We’re sure another could be arranged. Related question: how many ‘extraordinary meetings’ would it take to make the phrase redundant?
From JPM’s always excellent Flows & Liquidity team…
Purchases of offshore money market funds by Greek citizens, our proxy of Greek bank deposit outflows [the purchases of offshore money market funds by Greek citizens shown in Fig 1], points to a large €6bn deposit outflow this [being, last] week, bringing the cumulative deposit outflow since last December to €44bn.
Conventional wisdom holds that it would be an unmitigated disaster for Greece if it left the euro. This is, after all, why the country has continued to cling to the single currency despite the catastrophic decline in employment and output. But what if those costs have been grossly overstated?
An intriguing new note from Gabriel Sterne at Oxford Economics argues that, judging by the historical record, things really can’t get that much worse. According to Sterne, staying in the euro promises only years of stagnation and crushing joblessness, while leaving offers a chance, even at this late date, of rapid growth and the end of the depression that began seven years ago. In particular, he argues that leaving the euro would provide a fillip to the private sector’s balance sheet, boost trade competitiveness, and, perhaps most importantly, end the uncertainty over default and devaluation that has been choking off credit and investment. Read more
The governments change, the debts change. The rhetoric, on the other hand…
In light of the Greek prime minister’s recent ‘humiliation’ speech and the rather heated reaction it’s had among official creditors (and private bondholders) – we thought we heard some historical echoes. So we took a quick look through the archives. Read more
This guest contribution, from Giles Wilkes, sprung from a fierce internal debate amongst the FT’s leader writing team on Wednesday…
The standoff between the Greeks and their European creditors has often been compared to a Prisoner’s dilemma. This foundational scenario for game theory – famously, the expert discipline of Yanis Varoufakis, the Greek finance minister – concerns two prisoners accused of a crime who are handled separately by the police. Each are given the choice either of ratting on their accomplice, or staying silent. Should just one of the prisoners choose to rat on the other, he will walk free with a reward while his mate languishes in jail. If both hold firm, they each walk free unrewarded, while if they each betray their friend, then both are thrown into jail. Read more
It’s from Michael Hartnett, of BoA Merrill Lynch, but you probably would have guessed that if asked.
My Big, Fat Greek Dreading (and other risks)
To the upside: concerns over Greece prove misplaced, investors over-hedge Fed risks, passage of TPP boost investor & corporate confidence, tech’s creative disruption = higher PE, lower CPI. To the downside: inflation surprises to upside.
Hartnett doesn’t have much to add specifically on Greece, other than this intriguing chart. Read more
Spoiler alert. In this guest post, former IMF staffer Peter Doyle, argues that some participants in the on-going Greek crisis might be suffering from anosmia…
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There was that aggressive Giavazzi op-ed in the FT.
Oh, and 10,000 Greeks have taken their own lives over the past five years of crisis, according to Theodoros Giannaros, a public hospital governor, whose own son committed suicide after losing his job.
Maybe this is the end, end game. Read more
Greece’s creditors tabled their alleged take-it-or-leave-it proposals on Wednesday evening, but Greece has now also come up with its own final proposals. Thanks to leaks through the Greek press on Thursday afternoon, you can now compare the two draft proposals side-by-side.
Officially, Syriza wants Greece to remain in the euro area — but the strength of this desire obviously depends on the circumstances. There is no point in avoiding the costs of exit if staying in the single currency only guarantees years of stagnation, perhaps with the added pain of unhelpful “structural reforms” imposed for ideological reasons.
The question, then, is whether circumstances favour Greece staying in the monetary union, or striking out on its own. A fascinating set of notes from Oxford Economics suggests that you would be unwise to underestimate the chance that the Greek leadership voluntarily chooses to leave the euro area. Read more
A post-dated cheque without the drawing rights, that is.
As Tsipras and co stagger towards the next IMF payment deadline on Friday, all the while spitting furiously about the supposed abolition of democracy in Europe, it seems extraordinary that Greece has made it thus far without an event. Consider the payment schedule so far, from JP Morgan, published at the beginning of March… Read more
In this guest post, Gabriel Sterne, head of global macro research, Oxford Economics, looks at previous large drawdowns in Greek bond prices for clues about the future.
Greek Prime Minister George Papandreou “asked our partners to contribute decisively in order to give Greece a safe harbour” five years ago this week.
Since then, Greek government bond (GGB) prices have plunged by 37 per cent — or more! — four separate times, with one amazing long rally in between: Read more
Here’s former IMF staffer Peter Doyle , with some bold advice from the wings of the IMF Spring meetings…
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With Greek sovereign yields blowing wider on Thursday (and pretty much staying there), it’s worth revisiting what exactly might happen if, say, May 1 arrives and Greece fails to pay the €200m due to the IMF that day.
Received wisdom has it that the ECB will withdraw the ELA — emergency liquidity assistance — currently propping up the Greek banking system, which will promptly collapse; Tsipras and Co would then be forced to bring back the Drachma (or similar) and Greece would exit the eurozone.
But what do the “rules” here say? In the case of the ELA they run to all of two pages. Click the image to read in full. Read more