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
Bond Vigilantes reminds us of this:
Greece has raised €3bn in a five-year bond deal after attracting in excess of €20bn in orders for its eagerly anticipated return to the bond market. The yield on the deal was confirmed at 4.95 per cent – much lower than most analysts expected. Read more
This guest post is from Peter Doyle, an economist and former IMF staffer
In an otherwise sound critique of Mr. Varoufakis’ list of proposals for Greek government policies last week, Mme. Lagarde’s letter to Mr. Dijsselbloem contains an additional, unremarked, but revealing element. After saying that, in the IMF’s view, the Greek list was sufficiently comprehensive to be a valid starting point for a successful conclusion of the review, she added:
… but a determination in this regard should of course rest primarily on an assessment by Member States themselves and by the relevant European institutions.
Given the pressure on Vani et al, this cash requirement schedule might be useful….
H/T Malcom Barr at JP Morgan. Read more
We think this means the ECB doesn’t want Greece to end up defaulting.
From the pen of Yanis Varoufakis, do click through for the full thing.
Does money have value because the state says it’s money, or because the population trusts that it’s money?
It’s a great, perennial question. It’s also really not one Greece wants to find the answer to right now.
The question comes up reading yet another proposal for Greece to use a parallel currency so it can fight with its creditors without leaving the euro. So, coming fresh after Wolfgang Munchau’s appeal for Greek IOU issuance last week, Paul Mason has resuscitated “future tax coin”: Read more
So on Wednesday, we got this from the ECB as the Battle of the Drafts between the Eurogroup and Greece rumbles on — it’s in the FT’s words (we still can’t find a press release):
On Wednesday evening ECB policy makers approved a €3.3bn increase in ELA to the Greek banking system. Lenders will now have access to up to €68.3bn of emergency loans from the Bank of Greece, after members of the ECB’s governing council sanctioned the increase, from €65bn, at its regular fortnightly meeting.
The Bank of Greece had asked for more emergency funding, according to a person familiar with the matter. The approval is for a two-week period.
And this… Read more
Peter Doyle, an economist and former IMF staffer, argues that for Greece continued emergency lending assistance is a necessity.
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You may have heard Yanis Varafoukis, Greek finance minister, is also a professor of game theory.
However you’ve also probably heard negotiations over Greek debt are like a game of chicken, where both players try to convince the other they really will go ahead and crash the car.
This is the wrong analogy. It looks more like a bargaining game where two players have to find agreement to avoid an unpleasant outcome where neither side gets what they want. In practical terms, an agreement over an extension loan for Greece can be reached, it just depends on whether it benefits the troika or the Greek government more, while no agreement is bad for all concerned.
From Deutsche (click to enlarge):
As Deutsche say, beyond the preferences of the Eurogroup and how/ whether Greece chooses to extend the current program or apply for a new one, the binding dates for Greece have become more apparent: Read more
This from Dan Davies is worth a bit of your time — supposedly four minutes of your time according to Medium’s time-thingy.
It makes the very good point that the lack of Greece-dominated headlines over the weekend is most probably good news. As Dan says, we haven’t had stories of deposit flight and bank runs, there haven’t been anymore leaked documents, the ECB hasn’t piled on any more pressure and there has been no grandstanding of note — from Greek or German politicians.
From Davies: Read more
While we patiently wait for Wednesday’s late-night Eurogroup meeting to decide nothing about Greece…
Surveillance – the ECB’s role in the Troika has recently been questioned by the ECJ, and so some “rebranding” of the monitoring has looked likely. But the basic structure of program targets and reviews will remain in place. Read more
On the day Yanis Varoufakis declared “I’m the finance minister of a bankrupt country”: Read more
Terra Firma’s Guy Hands engaging in some macro tourism today:
It is true Greek gross domestic product has fallen by 25 percent since 2009 — an almost unprecedented reduction for a developed economy. But GDP remains close to twice the level it was when Greece adopted the euro in 2002. Read more
It’s Friday. You probably can’t wait for the weekend after a tough week.
A brief collection of reaction to Sunday’s election in Greece follows. Before we hear from the professional financial crowd, however, a word from Eric LeCompte, executive director of Jubilee USA…
This election was a referendum on austerity and debt policies. The people of Greece voted and said no to austerity and yes to renegotiating Greece’s debt.
Austerity programs can be likened to trying to help a patient on life support by punching them.
Speaking at Davos this morning, Angela Merkel and Alexander Stubb argued that European creditors should not be held responsible for their poor lending decisions.
Well, that’s not exactly how they phrased it: Read more
Eric Dor of the IESEG School of Management in Lille has a handy table. Click to enlarge…
A snap presidential election — and the chances of Syriza coming into power if the government fails to win enough support to push its candidate through — are all it took to push the ASE down over 10 per cent on Tuesday.
Which makes it a 27 per cent drop for the Athens bourse this year. Only the Portuguese, Nigerian, Russian (in US dollars), and Ukrainian stock markets have done worse in 2014. Read more
The IMF has picked its week to publish another paper on changing its sovereign debt restructuring policy…
Although the paper released on Friday — which follows an initial review last year — isn’t about Argentina, pari passu, and holdout issues. It’s about Greece. Read more
From the Bank of Greece’s Chronicle of the Great Crisis (h/t Faisal Islam), or at least the English extract released so far, here’s confirmation of the euros that were flown into Greece during 2010/ 11. Just the €5.3bn:
We can imagine that’s something of a trigger word for Greek bondholders with long memories. Read more
Here’s where another €2bn or so of freshly-issued Greek bonds would go. Chart via Citi:
And that’s after the largest sovereign debt restructuring in history. Bracing isn’t it?
And yet maybe Greece is better off paying up to issue a bond to private bondholders on Thursday. In the long run, it could well beat taking ‘free’ money from the Troika.
Coupon not fixed yet. But note a) that they’ve hired lots of banks to sell this and b) the law… Read more
This year’s IMF-World Bank Spring Meeting is likely to include discussion of proposals to change the fund’s policy on sovereign debt restructuring. Gabriel Sterne, senior economist at Exotix with IMF experience, and Charles Blitzer, Principal at Blitzer Consulting and a former IMF staff member, argue in favour of a case-by-case approach.
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One-year total return of the Athens stock index, to the end of October 2013: +50%
One-year return of the Bloomberg Greece Sovereign Bond Index, same period: +134%
One-year net return of Dromeus Capital’s Greek Advantage Fund: +107%
Yep — FT Alphaville hears that the first-year performance of Dromeus Capital’s Greece-focused fund would make it one of 2013′s best-performing, having already made a strong start at the beginning of the year.
It’s another indicator of how much both Greek equities, and the sovereign’s restructured debt, have recovered this year… Read more