The collapse of the Greek economy is almost without precedent. Real household consumption has dropped by 27 per cent since the peak. During the global financial crisis, this figure “only” fell by 6 per cent before rebounding:
We’ve raised the possibility Greece’s sovereign debt burden is far lower than the headline figures — and the potential significance of this — in previous posts. Now it’s time to dig in.
(The idea was brought to our attention by Paul Kazarian, whose Japonica Partners has a position in Greek government bonds and would stand to profit from a compression in risk premiums. His interest in the outcome doesn’t necessarily mean he’s wrong.) Read more
After years of failed attempts to stabilise the Greek economy, the Greek government finally got debt relief in 2012. As we explained in our previous post, interest payments fell by more than half between 2011 and 2013. Since the 2012 modifications, Greece’s sovereign debt service costs have been significantly smaller as a share of total output than in Italy or Portugal.
Yet it hasn’t helped much. The economy continues to contract and Greece’s depression since 2008 is among the absolute worst of any country in the world since 1980. Investment spending had already plunged by 60 per cent in real terms between the peak in 2007 and the end of 2011. Since then, it’s dropped another 13 per cent. Overall, Greece has had no economic growth since the beginning of 2013:
Part of the reason: the debt modifications failed to convince private investors to return to Greece, despite having “solved” the problem of government debt service costs. Read more
Last week, we revealed a significant discrepancy between the Greek government’s net debt as reported by the International Monetary Fund’s World Economic Outlook database and what you’d get if you replicated the IMF’s standard methodology for netting out “financial assets corresponding to debt instruments” using data published by the Bank of Greece.
Neither the IMF nor the Bank of Greece had responded to our requests for an explanation of the discrepancy at the time we wrote our original post, nor did either institution respond in time for our follow-up discussion of the Greek government’s equity portfolio. Four days after we’d emailed our original question (while we were on holiday) we finally got some responses. Read more
According to data published by the Bank of Greece, which follows common standards set by the European Central Bank and Eurostat, the general government sector of the Greek economy owned financial assets worth about €86bn at the end of 2015.
Of that, about €18bn consisted of claims by various levels of government on each other, specifically about €3bn in T-bills, €7bn in Greek government bonds, and €8bn in short-term loans from local government to the central government. Net out those claims and the general government sector of the Greek economy held financial assets of about €68bn at the end of 2015. Read more
According to the International Monetary Fund, the Greek government’s financial assets were worth around €3bn in 2015, or less than 2 per cent of GDP. That’s what you get if you take the difference between general government gross debt and net debt, as reported in the latest version of the World Economic Outlook Database.
Yet according to our independent analysis of data from the Bank of Greece — and using the IMF’s preferred definitions of what should and shouldn’t be counted — the Greek government’s financial assets appear to be worth around €30bn in 2015, or about 16 per cent of GDP. Read more
Time is a flat circle, which is why the Greek government is set to run out of money before debt payments are due to the European Central Bank in July — just like last year, and despite last summer’s supposed deal between the Greek government and its various “official sector” creditors.
As before, the immediate cause of this latest crisis is the persistence of disagreements about the size of the budget surpluses (excluding interest) the Greek government is expected to generate, the specific “reforms” the government needs to implement, and the need for debt relief. The fundamental cause, however, is that the Greek government can’t raise money from the private sector at reasonable rates.
Why? Read more
Alphachat is available on Acast, iTunes and Stitcher. Read more
Following the results of the Asset Quality Review and Stress Tests before the end of the year, the bail in instrument will apply for senior debt bondholders whereas bail in of depositors is excluded.
– Eurogroup statement on Greece, August 14th
Which ‘instrument’ might that be for wiping the senior bonds of under-capitalised Greek banks? Read more
You can see what we were going for…
You can follow the ASE, off 22 per cent at pixel, here. There’s more from markit here: Read more
UPDATE: Yanis also approves this statement “on the FinMin’s Plan B Working Group & the parallel payment system” which includes such lines as “Ever since Mr Varoufakis announced the existence of the Working Group, the media have indulged in far-fetched articles that damage the quality of public debate.”
Katie Martin over at Fast did the needful and typed out Yanis’s words so we wouldn’t have to. Read more
Greece has endured a Depression-level collapse over the past few years, with employment and real national income both about 25 per cent below their pre-crisis peaks. As if that weren’t bad enough, capital controls, introduced in response to the Eurosystem’s refusal to act as a lender of last resort to Greek banks that had passed the ECB’s stress tests, have led to reports of shortages at grocery stores and gas stations.
Yet none of this was visible when we visited the country over the past few weeks, even in the large cities. The point isn’t that Greece is doing just fine — far from it. Rather, it’s an illustration of the dangers of relying on anecdotes and personal experience when evaluating an economy of many millions of people. Read more
In this guest post, former IMF staffer Peter Doyle castigates the institution’s flip-flopping over Greece…
________ Read more
We started this post before a Greek deal rendered the discussion of a digital parallel currency moot. Nevertheless, it’s still worth looking to the Kenyan M-pesa for a better understanding of why it’s dangerous to treat fintech solutions as panaceas for economies struggling with productivity, poor credit profiles, tax collection issues and overall corruption without understanding what’s really at stake.
Kenya is often presented as an example of a country which has flourished thanks to mobile money adoption — the poster child that “digital payments can make the world a better place”.
But often forgotten is Kenya’s unique circumstances. The M-pesa mobile money system, owned and operated by Safaricom which is 40 per cent owned by Vodafone, was allowed an unchallenged monopoly in the country for a very long time. Read more
Here is another very strange, and short, document. Click to read.
It’s an update to the Greek debt sustainability analysis by IMF staff — yes one of those analyses again — which was originally published just before Greece’s July 5th referendum. Read more
Barclays have assessed the Greek banks which, prior to Monday’s “deal,” were in a precarious position.
Since the crisis hit Greece more than five years ago, we estimate that Greek GDP has regressed to levels not seen since 1998 and is still falling. The impact of this has been dramatic on the banking system. The banks have lost nearly 25% of their deposit base since December 2014. Confidence has evaporated on the banking system, leading to the imposition of tight capital controls immediately after the call for a referendum by the Greek government on 26 June, as a fully-fledged bank run hit the banking system. Profitability and asset quality have also turned for the worst in 2015. Despite the super-capitalisation of Greek banks under the second programme, banks will in all likelihood now require further capital injections to deal with rising nonperforming assets
From the FT’s live story:
Eurozone leaders have reached a compromise deal over a Greek rescue plan after an agreement thrashed out by Angela Merkel, François Hollande and Alexis Tsipras was unanimously backed by other leaders.
At a press conference after the all-night talks the German chancellor said the deal was worth €86-87bn over three years. She added that trust with Greece “needed to be rebuilt.”
Is it enough to keep Greece in? Read more
Earlier this week we gave fintech people a brief guide to the Greek crisis in a bid to explain why payments technology is unlikely to be part of any solution there.
On bitcoin specifically: why on earth would Greece want to replace the euro, a currency it already thinks too restrictive, with another which would be even more constraining and give Greeks even less control over monetary affairs!? Read more
At length. Because haven’t you heard?
Germany is a hypocritical creditor.
It won’t give Greece the debt relief which it received itself in the 1950s.
Thomas Piketty said it. So it must be true: Read more
The writer is Mohamed El-Erian, chief economic adviser to Allianz and chair of US President Barack Obama’s Global Development Council.
Wondering why European peripherals are relatively well behaved while virtually all other risk assets have sold off this morning?
It need not be about irrational or misinformed markets. Instead, it is consistent with expectations of additional market intervention by the European Central Bank.
Concerns about China and Greece are fueling increased risk aversion. Equities are selling off, hard duration (including German and US government bonds) is rallying, commodities are getting crushed, and emerging market currencies are under pressure. Read more
Via the inbox… reports of disappointment on a BNP Paribas conference call about Greece: Read more
Here’s a puzzle. Neither the Chinese stock slide or the Greek ‘no’ vote are having much of an effect on the gold price — odd given that the goldbug narrative that gold always performs well in a crisis:
They say crises define movements and people.
If that’s the case, purveyors of fintech payment solutions could soon be defined as those who stood ready to exploit a Greek national bankruptcy crisis for the benefit of “onboarding” users. Read more
By blog, naturally - Read more
Here is an earnest, but very strange, document. Click to read.
It’s a Greek debt sustainability analysis by IMF staff. Yes, one of those analyses. A preliminary one, but in many ways the DSA to end all DSAs. Read more
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:
- Paul McNamara, Investment Director, Emerging Markets, GAM Holding AG
- Gabriel Sterne, Head of Global Macro Research, Oxford Economics
- Rodrigo Olivares-Caminal, Professor of Banking and Finance Law, Queen Mary University London