Greece Debt Crisis
It was never going to be the world’s largest sovereign debt write-down. That was Greece last week. Anyway, how could it. The Federation of Saint Kitts and Nevis is the smallest country in the Western Hemisphere. But did it have a big debt overhang — some 160 per cent of GDP. Fortunately St Kitts and Nevis successfully closed an exchange offer for its bonds on Friday: (Click image for press release)
Greece’s embattled government won a vote of confidence in parliament early on Wednesday, clearing a significant obstacle to a fresh €120bn bail-out by international lenders, the FT reports. The confidence motion in George Papandreou’s reshuffled team passed by 155 votes to 143, with all of his Socialist party deputies voting for the government. “If we are afraid, if we throw away this opportunity, then history will judge us very harshly,” Mr Papandreou said in a final appeal for support before the vote. The prime minister’s government must now rapidly pass two more tests – enacting a €28bn austerity plan and the laws needed to implement it – to win a new bail-out to avert the eurozone’s first sovereign default and possible global economic disaster. The euro, which had made gains before the vote, fell back slightly in early morning Asia trading.
We all remember the Vienna Initiative, right? European banks promised to capitalise subsidiaries in emerging Europe in 2009. Governments didn’t collapse from bank runs. It turned out, in general, not bad at keeping some rubbish balance sheets ticking over.
Or, how FT Alphaville spent the fall and winter of 2009/2010. We bring it up because some sociologist-boffin has penned a paper suggesting the media made the Greek crisis worse with their relentless coverage and “sarcastic” headlines (no name check for FT Alphaville though, disappointingly).
So would the weirdo Greek restructuring plan being previewed in German paper Die Zeit work? Harvinder Sian, RBS’s rates strategist, reckons it might help, but utlimately something more radical would be needed.
Q. No matter how big your sovereign bailout fund gets — isn’t it far more important that it’s actually sustainable to refinance its loans? A. Ask Fitch, which has just become the last of the three big ratings agencies to junk Greece’s credit (it’s now rated B+ BB+).
Bloomberg News has filed a lawsuit against the European Central Bank to try to force it to disclose documents showing how Greece used derivatives to hide its fiscal deficit and helped trigger the region’s sovereign debt crisis, the newsagency reports. The lawsuit asks the EU’s General Court to overturn the ECB’s decision not to disclose two internal documents drafted for the central bank’s six-member executive board in Frankfurt this year. The notes show how Greece used swaps to hide its borrowings, according to a March 3 cover page attached to the papers obtained by Bloomberg News. ECB President Jean-Claude Trichet withheld the documents after the EU and IMF led a €110bn bailout ($144bn) for Greece.
Lastenverteilung = German for burden-sharing. And there was a serendipitous juxtaposition of Lastenverteilung-inspired downgrade review pain from Moody’s for both the Greek sovereign and German bank subordinated bondholders on Thursday, thanks to two separate instruments of burden-sharing.
S&P on Thursday warned Greece it could receive a lower credit rating as proposed EU rules threaten to hurt bondholders, reports Bloomberg. Greece’s ‘BB+’ long-term sovereign rating was placed on “CreditWatch” with negative implications, S&P said, noting that it was assessing credit implications of the so-called European Stability Mechanism that may govern EU sovereign bonds from July 2013. FT Alphaville has more detail on S&P’s statement. One economist told Bloomberg that the possible cut by S&P “is simply an indication of tightening liquidity conditions… and growing uncertainty about Greece and other front-line European countries’ ability to handle their debt loads”.
Former FT blogger Willem, ‘Maverecon’, Buiter has lost none of his power to shock. He may be the chief economist of Citigroup but that doesn’t mean he can’t speak his mind as his latest essay for the bank’s clients proves.
Now here’s an interesting Greek coda to the weekend announcement of loans for Ireland. The Irish loans had strikingly longer terms (seven years) than had been expected based on current EU/IMF lending to Greece (three years).
Greece’s reform programme is still “broadly on track” but a fresh round of structural measures is needed to cultivate a sustained recovery, according to a monitoring mission from the European Union and International Monetary Fund, the FT reports. “The programme has reached a critical juncture,” the “troika” mission – representatives of the European Commission, the European Central Bank and the IMF – said on Tuesday. The troika was ending a 10-day mission to Athens to check compliance with the terms of the country’s €110bn bail-out package. It warned that further structural reforms – opening up “closed-shop” professions, simplifying administrative procedures and modernising collective wage bargaining – required “skilful design and political resolve to overcome entrenched interests”.
They’ve gone all weirdly hump-shaped. The below CDS curve charts are all from Markit, and the black and brown ones are the most recent, and the light grey is from three months ago — except for Greece.
If anyone was hoping Tuesday’s Austria-Greek kerfuffle was a slip of the tongue by finance minister Josef Pröll — it seems not. On Wednesday there are multiple reports that payment of Austria’s next tranche of Greek aid will be delayed until January.
Investors demanded high premiums from Spain and Greece at debt auctions on Tuesday as pressure mounted on eurozone bond markets amid concerns about EU deliberations over a possible Irish bail-out, the FT reports. Spain borrowed almost €4.97bn ($6.74bn) and Greece €390m from the markets as both countries paid a high price due to investor alarm over Ireland’s banking problems. Bloomberg quotes one analyst saying peripheral markets of the eurozone “remain at considerable risk of contagion”, while the Telegraph says the great concern is that the crisis could spread to Spain, which has a bigger economy than Greece, Portugal and Ireland combined.
Investors demanded high premiums from Spain and Greece at debt auctions on Tuesday as pressure mounted on the eurozone bond markets amid concerns that Ireland was facing an imminent bailout, the FT reports. Spain borrowed almost €4.97bn ($6.74bn) and Greece €390m from the markets as both countries paid a high price due to worries that Ireland’s banking problems would force the country to seek emergency help.
Tuesday is a big day for European markets, in case you hadn’t noticed. And not just because eurozone finance ministers are meeting in Brussels this afternoon to talk all-things-Irish. Elsewhere in the currency union — both Spain and Greece had bond auctions earlier this morning. And the latter has also just experienced a little bailout slip-up.
Greece faces fresh scrutiny this week in tests that could further strain eurozone bond markets already pressured by banking woes in Ireland, reports the FT. The first challenge comes on Monday as Eurostat, the European Commission’s audit unit, is set to revise upwards Greece’s 2009 budget deficit figure to about 15.3% of GDP from the current 13.6% estimate. This could spark a sell-off in Greek bonds and those of other peripheral economies amid growing doubts about the ability of weaker eurozone economies to restore growth. Also on Monday, officials of the European Commission, ECB and IMF – known as the ‘troika’ – will visit Greece to assess progress on fiscal and structural reforms agreed in return for a €110bn bail-out last May. Bloomberg meanwhile reports that Germany is pressing Dublin to seek aid before a Nov 16 meeting of EU finance ministers.
Barclays Capital economists Pietro Ghezzi and Antonio Garcia Pascual have moved peripheral bond markets once before. They pointed out in September that Ireland was in danger of falling behind on making its fiscal cuts work, considering a poor outlook for growth in the coming years. That caused Irish spreads to widen even more, amid existing tension over Anglo Irish’s bailout.
The Greek bond market has been the star performer in the eurozone in the past three months as confidence grows that Athens can turn round its economy, the FT reports. A combination of better data than expected, China’s pledge to buy the country’s bonds and hopes that international bail-out loans will be extended have boosted investor sentiment. Greek 10-year bond prices have jumped 10 per cent, with yields falling 13 per cent, since June 30. The Greek bond markets have also recorded total returns of 8 per cent since June 30, according to iBoxx indices. It has comfortably outperformed the rest of the eurozone in price, yield and total returns.
The Greek sovereign has, by all accounts, had a good weekend. As Bloomberg reports, both the IMF’s managing director and a board member of the European Central Bank have said that their institutions might extend the term of loans given to Greece under its EU bailout.
Greece’s parliament on Thursday pushed through legislation that will grant tax amnesty to millions of citizens and sharply reduce tax revenues, even amid the country’s continuing bail-out, reports the FT. The law means that Athens will collect only about €2bn ($3bn) over the next two years, far short of an estimated backlog of unpaid taxes over the last decade of about €35bn. The move has been sharply criticised, not least within the governing Socialist party, which pledged when it came to power a year ago to avoid the long-standing practice by governments of agreeing tax amnesties every three to four years.
Attention George Papaconstantinou — the more you insist upon something, the no likelier it is actually to be true. Although your credibility will collapse even further when the opposite happens. As the Greek finance minister said on Wednesday, via the FT: