Greece Debt Crisis
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:
Is France facing a future Greece-style debt crisis? Er, maybe — so long as you ignore the difference in their government bond yields and just use debt-to-GDP projections made in a working paper from 2010. But we’ll get to that later. For now, it’s over to John Mauldin of Mauldin Economics in his weekly newsletter who’s going to tell us why France is a ticking time bomb run for your lives: Don’t look now, but the lion that lies hidden in the grass is France. Yes, the France that is supposedly a big part of the solution to eurozone woes and Germany’s stalwart partner in guaranteeing all that debt. AAA France. Rated that way by the same people who turned the nuclear waste of subprime CDO squareds, composed 100% of the worst sort of BBB junk, into gold.
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.
With a new government in place and market focus shifted to Spain and Italy’s debt issues, Greece has been enjoying a bit of welcome breathing space. The country’s banks have been seeing steady inflows since the election two weeks ago, according to Reuters (emphasis ours):
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…
And the Syriza leader is talking tax, ahead of Greece’s weekend election. The people of Greece want to replace the failed old memorandum of understanding (as signed in March with the EU and International Monetary Fund) with a “national plan for reconstruction and growth”…
The Spanish bank bailout, aka “failout”, may have been shrugged off by the markets on Monday but it seems to have given encouragement to Greek politicians as they prepare for the weekend’s elections. The thinking broadly seems to be, if there’s room for manoeuvre/more cash for Madrid, why not for Athens!
We already knew we’d have to watch for a Spanish banking bailout request tomorrow. Now comes Moody’s with a report warning that “recent developments in Spain and Greece could lead to rating reviews and actions on many of the euro area countries” — and offering a generally downbeat if less-than-original assessment of the euro zone’s future in general.
We’ve all been griping about the “bank jog” that has been eating away at the Greek banks’ deposit base — €70bn or so of deposits flying out of the country’s banks seems to be a bad news no brainer. But what if the scale of the flight has a counter-intuitive positive side? (Although “ever so slightly less negative side” would probably be a better description.)
Alexis Tsipras, the leader of far left Syriza, took to the airways on Friday morning to declare he will essentially cancel austerity in Greece should his party come first in the upcoming elections. He wants the vote to be a sort of referendum on terminating the bailout agreement. And, unsurprisingly, his message has been going down well with the voters. The latest poll gives his party a six point lead. But results of the second round of voting are as difficult to predict as the first. We wanted to take a closer look at the figures as they are the last set we’re going to get. Friday is the last day poll are allowed to be published ahead of the June 17 elections.
You know things are tricky when your energy options are Iran, Glencore or blackouts, and then the Iran option is removed. We’ve known for while that Greece’s reliance on Iranian oil has put it in a difficult situation, at time when banks are pulling letters of credit and Iran sanctions bite. This was an early sign of creditors’ fear of drachma exposure.
Nomura’s Richard Koo is kinda with Christine Lagarde when it comes to the Greek tax problem. But eurozone bonds (aka eurobonds) are not the solution, he says. Firstly, Greece needs to address its mutual distrust problem with Germany, and persuade the Germans that it will get serious about this tax collection thing:
Greece’s latest tax revenue numbers were out on Friday, reports the Ekathimerini. Everyone expected them to be dire and, guess what? They are really dire. Inflows in the first 20 days of May were down 20 per cent on the same period a year ago. The general election in early May didn’t help things, but these figures are still worse than most analysts were expecting.
The ‘Greece’ section of the Bundesbank’s latest report on the German economy must be read to be believed (emphasis ours): Current developments in Greece are extremely worrying. Greece is threatening not to implement the reform and consolidation measures that were agreed in return for the large-scale aid programmes.
First it was John Dizard arguing that Greece could issue scrip and have this circulate as “money” during a funding stand-off with the Troika — without getting chucked out of the eurozone. There are precedents that vaguely resemble this kind of stopgap approach: remember patacónes?…
Real games of chicken are about fundamentally misaligned incentives. So, at the weekend’s G8, Europe’s voice was heard, and it muttered something under its breath about Greece ‘respecting the commitments that were made’ to its second bailout’s terms. No renegotiation. We also all know what Alexis Tsipras thinks of pretty much any terms applying to a bailout. Cue the Grexit fear cycle, terror of a retaliatory funding shock, etc.
Beneath the political stasis — another sign of a sharp turn for the worse in Greece’s liquidity crisis. The country’s pharmacies are owed €500m by the state-backed healthcare insurer, according to reports. From next week patients will have to stump up the cash for their medicines upfront, and then claim a reimbursement from the National Organization for Healthcare Provision (EOPYY).
From the FT: Athens-based bankers said withdrawals exceeded €1.2bn on Monday and Tuesday – 0.75 per cent of deposits – as President Karolos Papoulias failed in two final meetings with conservative, socialist and leftwing leaders to form a national unity government.
The desperate cunning scheme to get Greeks to pay property taxes by bundling them with electricity bills didn’t last long. You guessed it, people stopped paying their electricity bills and now it looks like the power company – which had to be bailed out last month – has stopped even trying to collect the levy. From Ekathimerini, the Greek daily (emphasis ours):
That’s our (no doubt dodgy it was: fixed) paraphrasing of President Karolos Papoulias of Greece, during Sunday’s talks with the leaders of the New Democrats, PASOK, and Syriza. Οι διαφορές των θέσεών σας είναι μικρές και ασήμαντες σε σύγκριση με το χρέος σας απέναντι στην πατρίδ
Everyone who’s anyone (and some other people too) has a view on what will happen to the value of the euro if Greece makes an exit. Probably of dubious predictive use, but here is a selection for your interest (with our emphasis): Soc Gen’s Kit Juckes:
*Tsipras says must be moratorium on Greece debt payments That, earlier on Tuesday, was Alexis Tsipras – head of Syriza and current owner of the mandate to form a coalition government (as forlorn as that is now looking). Syriza took second place in Sunday’s elections.
It’s a Bank Holiday Monday in the UK so analysis is pretty thin on the ground. But here’s the best of what we have so far. A quick recap: François Hollande won the French election, while the Greeks rejected the country’s main austerity focused parties, opening the country to political uncertainty. From Kit Juckes at Societe Generale: