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
A flurry of fresh headlines: Greek stocks pummelled; “Air of unreality” as IMF quits talks. A seemingly credible report from Germany’s Bild saying Angela has resigned herself to possible Grexit.
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.
The Troika stuff comes in two parts, policy commitments and prior actions, courtesy of Tovima. Click the images tow read: 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
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.
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.
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.
Those rascal short sellers are at it again, daring to ask awkward questions of the European project. This time the manifesto comes from New York based Tortus, who have a plan to “rehabilitate” Portugal. (H/T @Pawelmorski and @IyerC).
Before rehabilitation, however, there must come acceptance, and Tortus is short “certain Portugese sovereign bonds” because it does not think the status quo is sustainable. Read more
Now that Cypriots have elected the guy who’ll have to negotiate how to pay for the costliest bank bailout in history (relative to the size of the economy on the world’s 81st-biggest island)…
He (and they) could do worse than look at these charts, courtesy of Gabriel Sterne at Exotix: Read more
Angela Merkel visited Portugal on Monday to give a message of “tough love”, as the FT put it:
The German chancellor praised Lisbon for the “courageous way” it had implemented deficit-reduction measures, saying there was “at the moment no reason to renegotiate” the adjustment programme… Read more
So, we’re going to the wire once again in the now traditional dance between Greece and the troika. As the FT reported on Thursday:
Eurozone leaders face a new round of brinkmanship over Greece’s €174bn bailout after international lenders failed to bridge differences on how to reduce Athens’ burgeoning debt levels, pushing the country perilously close to defaulting on a €5bn debt payment due next week.
So, the Greek government has left this latest, very long, round of eurozone marriage counselling to head into, well, predictable domestic acrimony with headlines like “Crucial Test for Greek Coalition” trailing in its wake. From the ekathimerini:
“We did everything we could. We achieved significant improvements,” noting that Greece would remain in the euro if the package was passed and otherwise risked “descending into chaos.” “It is now down to the sense of responsibility of all political parties and each individual MP,” Samaras said.
Democratic Left issued a rejection within minutes, saying it does not agree with the outcome of negotiations with troika and repeating its objection to labor reforms.
JP Morgan’s Alex White points out that the next few weeks are going to be critical and that this one is likely going to the wire… again. Read more
The euro is dropping and Talthybius-wire has a few suggestions why. Our money is on the fugitive.
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
There are two fairly important bits to this story in Der Spiegel.
One, that Merkel wants to avoid a Grexit for the time being and two, that the upcoming Troika report might be massaged to make that a reality. Read more
Chalk this one up to the ‘second bailout, no PSI‘ trade, maybe — Portuguese government bonds have been a top performer so far this year.
So, as for that second bailout… 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
The euro crisis spotlight may be focused on Spain and the larger euro members this week, but it’s unlikely to be long before it swings right around to Greece. Again.
It seems that further EU/IMF loan disbursements to Athens are not likely before September. But some €3.2bn in bond redemptions are due on August 20, requiring perhaps a bridge loan. Read more
The New Democrats are off to attempt forming a coalition, Pasok’s busy making itself look important but will probably join, while Syriza says it’ll be “very powerful” in opposing them. It’s already conceded to, and ruled out allying with, the NDs.
So… Read more
The ECB’s move to unclog the transmission mechanism, that carries its monetary policy decisions to markets and the wider economy, has been unconventional. The €1,019bn in cheap three-year loans to banks, under its long-term refinancing operations (LTRO), being the most daring.
Naturally, the question on the minds of many is whether the operation has just delayed the inevitable. While the policy goal for the eurozone’s central bank was clear — unclog the transmission mechanism — the fact that this would just buy time for the fiscal and balance sheet readjustments of sovereigns and banks was evident from the beginning. Read more
Here it is via a reader (not that one), also in various places on the interwebs.
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.
You can say what you want about the achievements of the WTO; it sure is nice to be part of the club.
Certainly that is what the Kremlin will be thinking this morning after Russia cleared the final hurdle to joining the 153-nation trade organisation after 17 years of trying. Read more
European leaders on Friday received some interesting weekend reading.
FT Alphaville has also taken a look at “Greece: Debt Sustainability Analysis”, an assessment prepared by European Commission economists for discussion on Friday among European finance ministers. We’ve put it in the usual place (and extensively quoted excerpts below). Read more
Asian stocks rose for the fourth consecutive session on hopes for a solution to Europe’s debt crisis, while Chinese banks surged after a unit of the country’s sovereign wealth fund increased its stake in the lenders, the FT reports. The MSCI Asia Pacific index advanced 1.1 per cent with Hong Kong’s Hang Seng index up 3.6 per cent and China’s Shanghai Composite index 2.1 per cent higher. Earlier, the renminbi staged its biggest one-day jump in six years. Overall sentiment was boosted by pledges made by German and French leaders over the weekend to recapitalise Europe’s banks. They plan to unveil a comprehensive package of measures to tackle the eurozone debt crisis by the end of this month. Meanwhile talk grew of bigger haircuts for Greek bondholders. The Telegraph says unnamed officials told the newspaper it is “more likely than not” that investors will suffer bigger losses on Greek debt than the 21 per cent haircut agreed in July, with the exact level to be determined by the Troika.
How do you top a note that goes into the unlikely but vivid possibility of serious social unrest, civil war and authoritarian governments in modern Europe?
Such a conundrum faced UBS Europe economists after their warnings earlier this month of what a eurozone break-up could mean a few weeks ago. In a new note, they say things have entered a more dangerous phase now. A €1,000bn – €2,000bn levered rescue fund appears unrealistic, they say, amid the opposition to the ECB funding the EFSF. Read more
There’s been plenty of comment, and prodding, about how European politicians need to man (and woman) up, bite the bullet, and start acting with conviction. After all, with every passing day, the price tag rises as the level of distress increases and lack of growth butts up against austerity measures.
Take, for example, the slow hollowing out of Greek banks, which suffer not only for their holdings of their government’s debt, but also from the flight of depositors. Every wonder exactly how much deposit flight there has already been? Credit Suisse has your back on that one, chart below: Read more