Gary Jenkins of Swordfish Research aspired to have more thoughts on the latest Greek debt deal by Wednesday morning. Alas, it was not to be:
I was hoping that having had a further twenty four hours to digest the Greek debt sustainability plan that I would have a lot to add to yesterday’s comments, but I don’t. There have been press reports (FT) that the measures to be implemented will only bring the debt/GDP figure down to 126.6% rather than the 124% announced but I think by now we are all used to the initial figures released being subject to revision pretty quickly.
We agree — the figures around Greece always come with implied aspiration. Read more
From Gary Jenkins at Swordfish Research:
Strange to think that over 100 million votes cast in the US may have less impact upon the markets over the next month or so than some 300 votes due to be cast in the Greek parliament this evening.
Apparently that Greek shortfall is even bigger than the even bigger figure reported in the German press on Monday.
From Eurointelligence: Read more
France thinks Greece should get the two extra years that it’s been seeking to achieve the cuts outlined in its 2013-14 austerity programme.
The French PM: Read more
Greek cabinet ministers are meeting later today to finalise how they’re going to come up with €11.5bn in savings over the next two years as demanded by the Troika. Unsurprisingly, the most contentious and sensitive part is the €1.5bn in pension and wage cuts that are needed.
From the FT: Read more
There’s excitement in Greece today. It may be the day Greece finally gets a government!
From Kathmerini on Tuesday morning: Read more
If Greece ends the reform process it has undertaken, then I can’t see that the respective tranches [of aid] can be paid out.
– Guido Westerwelle Read more
Greece goes to the polls this weekend. And it looks like it’s going to be messy. The potential for the “wrong” result to wreak havoc in the markets on Monday morning is real.
The outcome is very difficult to predict due to the incredible fragmentation of political support within the country and the rise of marginal parties. Many of these are deeply opposed to the austerity measures, the euro and the EU/IMF programme. As a result, mainstream parties have been dragged away from the centre. Read more
The use of collective action clauses in Greek bonds, as part of the country’s sovereign restructuring, seems set to trigger credit default swaps. For the $3.2bn of net notional still outstanding on the contracts, it’s been a long road to a credit event.
In Part 1, FT Alphaville discussed how the next point of focus will be the performance of the auction that will determine the payout to protection buyers of the contracts. Read more
Are you feeling relieved that the whole CDS trigger debate for Greece might be over? Well, you may have been relieved too soon. There may well be a big, nasty hitch.
A hitch involving how the credit event auction for Greece — where CDS payouts are determined — works. Read more
Eurozone finance ministers reached a long-delayed €130bn second bail-out for Greece early on Tuesday after strong-arming private holders of Greek bonds to take even deeper losses than they had accepted last month, the FT reports. Although Greek bondholders agreed in October to accept a 50 per cent cut in the face value of their bonds in face-to-face negotiations with Nicolas Sarkozy, France’s president, and German chancellor Angela Merkel, they will now be offered a “voluntary” deal with a haircut of 53.5 per cent, eurozone officials said. Both Mr Juncker and Christine Lagarde, managing director of the International Monetary Fund, emphasised at a post-meeting press conference that Greece still had to live up to a series of “prior actions” by the end of the month before eurozone governments or the IMF can sign off on the new programme. The bail-out comes with tough new terms, including a permanent team of monitors in Greece to ensure Athens lives up to the terms of the bail-out deal and an escrow account which Greece will ensure always holds three months worth of debt payments. The escrow account will be temporary, however, and Athens has agreed to change its constitution to make debt repayment the top priority in government spending.
Here it is via a reader (not that one), also in various places on the interwebs.
So the deal is in, and it combines bigger private sector “voluntary” haircuts (53.5 per cent of face value, as opposed to 50 per cent agreed in October) with the ECB passing the profits from its Greek bondholdings onto the national central banks, who will then pass it onto Greece. Together these measures are expected to enable Greece to reach a debt/GDP ratio of 120.5 per cent by 2020. There is also mention of enhanced — and permanent — monitoring.
Some highlights below; full PDF here. Read more
Reuters quotes two sources saying a deal is done with a nominal PSI haircut of 53.5 per cent, or more than the 70 per cent net present value previously discussed:
Another official confirmed that the financing would total 130 billion euros with the aim of reducing Greece’s debts from around 160 percent of GDP now to 121 percent by 2020, but cautioned that drafting of the deal was only just starting. Read more
With a long night of Euro-deal watching ahead we thought we would leave you some mixed-metaphors to mull over.
This is from Gabriel Sterne over at Exotix (emphasis his): Read more
Eurozone governments are looking to the European Central Bank and national central banks to help pare back the cost of a second rescue package for Greece which would otherwise amount to €170bn. Figures seen by the FT reveal Greece needs €136bn in fresh bail-out funding from the European Union and International Monetary Fund – in addition to the €34bn left over from Greece’s first bail-out. This is €6bn more than EU leaders agreed in October. Germany, the Netherlands and Finland have insisted on paying no more than €130bn. Eurozone finance ministers, who meet in Brussels on Monday to hammer out a deal to save Greece from default, hope the ECB can contribute by forgoing some of the future profits it would earn on its Greek bondholdings, which it has said it is willing to do. Senior officials said they would also discuss a possible contribution from eurozone national central banks whose bondholdings could be included in a €200bn debt restructuring to be launched alongside the bail-out.
A tense Sunday in Athens as the Greek parliament approved an austerity budget amid violence in the streets that included riot police firing tear gas and stun grenades at protesters while buildings throughout the city were firebombed:
The legislation passed by 199 votes in favour to 74 against, a convincing majority for Lucas Papademos, the caretaker prime minister who has been given the job of pushing through painful reforms demanded by the European Union and the International Monetary Fund in return for a second €130bn bail-out. … Read more
Greek lawmakers on Sunday approved a tough austerity package aimed at averting a default, but the vote was overshadowed by violent street protests in central Athens and dozens of arson attacks against shops and banks, reports the FT. The legislation passed by 199 votes in favour to 74 against, a convincing majority for Lucas Papademos, the caretaker prime minister who has been given the job of pushing through painful reforms demanded by the EU and the International Monetary Fund in return for a second €130bn bail-out. The WSJ says that 43 deputies from the socialist party Pasok and conservative party New Democracy were expelled for not voting in favour and Antonis Samaras, leader of New Democracy and likely the next prime minister, said the measures should be renegotiated after national elections expected in April.
Eurozone finance ministers dismissed as incomplete a reputed €3.3bn package of Greek budget cuts presented to them in the hope of securing a new €130bn bail-out and sent the country’s finance minister back to Athens with a fresh set of demands and an urgent deadline, says the FT. In exchange for signing off on the loan, which Greece is depending on to avoid a potentially chaotic default next month, its lenders are demanding €325m in further cuts to this year’s budget, parliamentary approval of a sweeping reform package and a pledge from the country’s political leaders to ensure that they will maintain their commitment after April elections. Reuters reports Jean-Claude Juncker, who chairs the Eurogroup, said the Greek parliament must ratify the package when it meets on Sunday and the further spending reductions needed to be identified by next Wednesday, after which eurozone finance ministers would meet again. Bloomberg reports that Greek finance minister Evangelos Venizelos said the parliamentary vote set to begin this weekend amounted to a ballot on euro membership. “If we see the salvation and future of the country in the euro area, in Europe, we have to do whatever we have to do to get the program approved.”
The FT’s Global Markets Overview reports that the euro is rising and oil is rallying after news that Greek politicians have reached a deal on austerity measures, but stocks in Europe and in the US are struggling to maintain recent highs. Some markets were encouraged by the long-awaited Greek agreement, and the upshot of all the action is that investors are in a generally upbeat mood, despite limited details from Athens. The euro is one of the session’s highlights, adding 0.3 per cent to $1.3295. The single currency experienced a volatile session in Asian trade, first dropping to as low as $1.3215 and later staging a rebound, briefly taking out barriers at $1.33. The recent rally in the euro is also the result of a broader market risk appetite that has helped push global stocks and major industrial commodities to multi-month highs after recent US data bolstered hopes of a global economic recovery.
Greece’s political leaders ended weeks of market-rattling brinkmanship on Thursday by agreeing to €3.3bn in budget cuts that they hoped would clear the way for a second multibillion euro bail-out to avert a sovereign default, reports the FT. No sooner was the deal sealed in Athens, however, than a potentially more fractious debate began in Brussels, where eurozone finance ministers were poised to work late into the night to structure a bail-out package with the target of cutting Greece’s debt to 120 per cent of economic output by 2020. Hopes for an agreement were raised by Mario Draghi, president of the European Central Bank, who indicated that he was willing to forgo profits on the bank’s €40bn in Greek bonds, a move that could wipe up to €15bn off of the Athens’ €350bn debt load. Without the ECB’s co-operation, the International Monetary Fund has determined that it will be impossible to reduce Greece’s debt sufficiently through the restructuring of private debt alone. Private bondholders have agreed to take a €100bn writedown on the €200bn in Greek debt they hold.
Some detail on the draft agreement Greece’s political leaders want to submit to their international saviours (assuming they can agree to pension cuts).
Via Bloomberg (emphasis ours): Read more
A meeting among Greek Prime Minister Lucas Papademos, the parties supporting his coalition, and New Democracy, the opposition conservative party, broke up early Thursday morning without an agreement on economic overhauls sought by the EU and the IMF in exchange for lending an additional €130bn to the Greek government, says the WSJ. The key sticking point was cuts to the Greek pension system. “There is only one issue, that of pensions, to be resolved,” Antonis Samaras of the New Democracy party, the country’s second-biggest party, told reporters in Athens in comments televised live on state-run TV, reports Bloomberg. “The talks will continue.” Bloomberg reported earlier that a draft financing agreement said Greece would pledge permanent spending cuts, including lower pension payments and a 20 per cent reduction in the minimum wage.
The European Central Bank has made key concessions over its holdings of Greek government bonds, says the WSJ, citing people briefed on the country’s debt restructuring talks. The ECB has agreed to exchange the government bonds it purchased in the secondary market last year at a price below face value, provided the debt-restructuring talks have a successful outcome. The central bank won’t take a loss on the transaction, but it isn’t clear whether it will exchange the bonds at the below-par price at which it purchased them or whether it will make a profit, the newspaper says. The concession could reduce Greece’s debt by up to €11bn — difference between the price at which the ECB bought the bonds in the secondary market and their face value. The sources said that another option was discussed for eurozone national central banks to also take part in the debt reduction exercise had been rejected. Greece missed another deadline to approve conditions for a second €130bn bail-out on Tuesday night, the FT reports, after a meeting between the country’s political leaders was postponed until Wednesday because of last-minute haggling with international lenders over emergency spending cuts. In Brussels, José Manuel Barroso, president of the European Commission, insisted that eurozone leaders would continue to strive to keep Greece in the euro, an apparent rebuke to Neelie Kroes, the Dutch member of his commission who was quoted in her country’s press as saying a Greek exit would not cause significant shockwaves.
Greece missed another deadline to approve conditions for a second €130bn bail-out on Tuesday night, after a meeting with political leaders was postponed until Wednesday because of last-minute haggling with international lenders over emergency spending cuts, reports the FT. A government official said Lucas Papademos, the technocrat prime minister, would hold the talks on Wednesday morning and expected a deal to be presented for approval at a meeting of eurozone finance ministers later in the week. But the delay over agreeing €3bn of extra spending cuts fuelled anxieties that Athens may be forced into a messy default next month. It also triggered concern over whether Greece remains committed to fiscal and structural reform after two years of failing to implement measures agreed in return for billions of euros in financial support.
Grexit being, of course, a Greek exit from the eurozone. (Also, an app for archiving and sharing Gmail threads. Bummer for them.)
The term comes from Willem Buiter and Ebrahim Rahbari at Citi, who are now leaning towards the “let them leave” argument: Read more
European officials are insisting any new Greek bail-out programme specifically earmark funds to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets, says the FT, citing senior European officials. Under a Franco-German plan is likely to be included in a new Greek rescue, eurozone officials would create an escrow account to accept new bail-out funding instead of paying it all directly to Athens as in the past. The new fund would then ensure bondholders are paid off, while additional cash to run the Greek government could still be withheld if Athens did not live up to tough new reform demands. The report says the plan has backing from the European Commission in Brussels as well as several other eurozone countries. The WSJ says Greek politicians agreed to cut 15,000 public sector jobs by the end of this year, but the unity government has not been able to agree on wage cuts, although it cites two senior government officials as saying agreement to cut the minimum wage by 20 per cent was close.
The FT’s Global Market Overview reports that a rally in global equities was brought to a halt on Monday as fears Greece may not agree on terms for a second bail-out offset recent optimism over supportive global data. US stocks edged lower, following declines in European equities, while the euro see-sawed. Lack of progress on debt relief negotiations in Greece has also weighed on investor sentiment on commodities markets. The country must repay €14.5bn in March, which it will be unable to do without its second bail-out from the European Union, which will be up to €130bn. The uncertainty left last week’s closing highs – triggered by stronger-than-expected US jobs creation data – and wider risk appetite looking vulnerable. At midday on Wall Street, the S&P 500 was 0.2 per cent lower, after touching its highest level since July on Friday. The tech-heavy Nasdaq Composite Index was 0.5 per cent lower, while the FTSE All-World index was nearly flat.
The leaders of France and Germany stepped up the pressure on Greece on Monday to accept the terms of a new €130bn bail-out, saying there would be no further rescue unless all Greek political parties signed up to the deal, the FT reports. Leaders of the three political parties in Greece’s national unity government have postponed a planned meeting to agree reforms until Tuesday, the prime minister’s office said. Separately, the FT writes that European officials are insisting any new Greek bail-out programme specifically earmark funds to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets. Under a new Franco-German plan that senior European officials said is likely to be included in a new Greek rescue, eurozone officials would create an escrow account to accept new bail-out funding instead of paying it all directly to Athens as in the past.
Lucas Papademos, the Greek premier, failed to make party leaders accept harsh terms in return for a second €130bn bail-out, pushing Athens closer to a disorderly default as early as next month, reports the FT. Greek television reported that Mr Papademos has set a deadline of midday on Monday for the three leaders to let him know whether they agree in principle with the proposed austerity measures, before he meets them again later in the day. After five hours of discussions, the three leaders of Greece’s national unity government had not accepted demands by international lenders for immediate deep spending cuts and labour market reforms as part of a new medium-term package. Eurozone officials are deliberately refusing to allow Greece to sign off on a €200bn bond restructuring plan because the threat of default is the leverage they have to convince recalcitrant Greek ministers to implement necessary cuts. While some recognise that Greek politicians must be seen by voters to be putting up a fight, there are fears that the show of brinkmanship could easily go too far and backfire, with disastrous consequences. By late on Sunday, no meeting of the Euro Working Group had been formally scheduled for Monday, says Reuters, but it could confer either by conference call or schedule a face-to-face meeting at short notice, depending on the outcome of talks in Athens.