Bloomberg
April 30, 2015
Greece will proceed with the sale of stakes in strategic assets such as the port of Piraeus and 14 regional airports this year, according to Greek officials with direct knowledge of the matter.
The Hellenic Republic Asset Development Fund, which sells real estate, infrastructure and other government holdings, will send on Wednesday a revised tender offer to investors, including China Cosco Holding Co, to solicit bids for a stake in the Piraeus Port Authority SA, according to the people who asked not to be identified because the information isn’t public.
The fund is satisfied with an offer of 1.2 billion euros ($1.4 billion) for the lease of 14 regional airports in Greece from Germany’s Fraport AG, and expects to conclude the sale within a month, the people said.
The decision to sell the stakes suggests that Left-wing Syriza government is abandoning an earlier pledge to its electorate to block such privatizations amid efforts to secure further funding from international creditors as part of a 240 billion euro bailout.
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Thursday, April 30, 2015
Greece struggles to make payments to more than 2m pensioners
Financial Times
April 30, 2015
The Greek government was struggling on Thursday to complete payments to more than 2m pensioners after claiming that a “technical hitch” had delayed an earlier disbursement.
Elderly Athenians waited at branches of the National Bank of Greece, the state-controlled lender handling the bulk of pension payments, which are staggered over several days.
“Normally I only withdraw half the money at the end of the month, but today I’m taking it all,” said Sotiria Zlatini, 75, a former civil servant. “There are so many rumours going round because of the government’s problems and what happened two days ago.”
The leftwing Syriza-led government scrambled to pay pensions and public sector salaries in February and March after failing to reach agreement with international lenders on unlocking €7.2bn of bailout aid.
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Will Syriza survive bailout talks?
Financial Times
April 30, 2015
Without a deal with international creditors Greece could default by mid-May. But Alexis Tsipras will not want to be seen to be capitulating to Brussels. Frederick Studemann asks UCL’s Filipa Figueira and Europe editor Tony Barber if Syriza can survive.
April 30, 2015
Without a deal with international creditors Greece could default by mid-May. But Alexis Tsipras will not want to be seen to be capitulating to Brussels. Frederick Studemann asks UCL’s Filipa Figueira and Europe editor Tony Barber if Syriza can survive.
Majority of Financial Pros Now Say Greece Is Headed for Euro Exit
April 30, 2015
Greece, mired in a protracted financial crisis and at loggerheads with its bailout stewards, will leave the euro, according to the majority of investors, analysts, and traders in a Bloomberg survey.
Fifty-two percent of the respondents in the Bloomberg Markets Global Poll believe the cash-strapped country will leave the 19-nation bloc at some point, compared with 43 percent who see Greece remaining in the euro for the foreseeable future. In answer to the same question in mid-January, just 31 percent of poll respondents predicted a Greek exit and 61 percent had the country staying in.
The downbeat assessment of Greece’s prospects, more than five years after the country’s first bailout, comes as the country stands on the edge of a financial abyss. Prime Minister Alexis Tsipras has so far failed to squeeze a loan payment out of his country's institutional creditors as he sticks to his pledge to dial back austerity, while the nation’s banks stay on European Central Bank life support.
“The banking sector is Greece’s Achilles heel, and if the ECB decides to stop funding, then the situation will be even more fragile than it is at the moment,” said Diego Iscaro, a senior economist at research company IHS Global Insight in London. “That could trigger an exit—eventually.”
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Wednesday, April 29, 2015
Greek Banks Get More Funds as ECB Weighs Collateral Discount
April 29, 2015
The European Central Bank raised the amount of emergency liquidity available to Greek banks, while signaling that access to such funds may become more difficult if bailout talks remain deadlocked.
The Governing Council lifted the cap on Emergency Liquidity Assistance by 1.4 billion euros ($1.5 billion) to 76.9 billion euros on Wednesday, people familiar with the decision said. That follows an increase of about 1.5 billion euros last week. An ECB spokesman declined to comment.
With no speedy deal between Greece and its creditors in sight, the ECB is studying measures to rein in ELA funding to limit risks. Staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing, and the Governing Council may discuss the issue at its May 6 meeting.
“When the Eurosystem as a whole gives such support, we have our own collateral rules, we can set them ourselves,” ECB Governing Council member Ardo Hansson told reporters in Tallinn, Estonia. “When it’s ELA, then that’s given by the national central bank, which has some latitude in this matter.”
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Greece’s Far Left Against the World
Wall Street Journal
April 29, 2015
In a recent interview with an Athens newspaper, Greece’s minister of energy and development, Panagiotis Lafazanis, declared that Greece faces a life-or-death struggle against “neocolonial foreign centers.”
“We cannot have an agreement with the neocolonial centers that dominate the EU and the IMF,” he said, “if Greece is not able to really threaten their basic economic political and geostrategic interests.”
Such rhetoric is far from unusual in Greece these days, and its growing influence helps explain why the country is struggling to get a grip on its economic problems. From its very first day in power, the far-left Syriza party government of Prime Minister Alexis Tsipras has tried consistently to frame the political debate in Greece not as a conflict between differing worldviews or economic philosophies, but as a conflict between “foreign centers” and the “motherland” (patrida).
In this view, negotiations with creditors—especially Germany—aren’t about economic reforms, Greece’s ability to repay or the like. Rather, the bailouts are an attempt to exploit Greece for nefarious ends. In a recently published book called “Colonies of Debt,” Foreign Minister Nikos Kotzias purports to reveal a satanic plan by Germany aiming to subjugate Greece. This plan, according to Mr. Kotzias, involves turning Greece into a “colony of debt” so that the Germans can acquire Greece’s wealth. “Just like under the Nazi Occupation,” he writes, “Germany aims to control the mineral wealth of the country.”
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Spain and Portugal Can Cope With Grexit
Wall Street Journal
April 29, 2015
If anyone was going to blink over Greece, one might think it would be Spain or Portugal—the two countries widely considered most at risk if Greece leaves the eurozone. Indeed, both saw a slight rise in their borrowing costs last week at a particularly bleak moment in Greece’s negotiations with other eurozone members. And Goldman Sachs warned in an eye-catching report this week that if Greece does exit the euro, Spain’s borrowing costs could rise to four percentage points above Germany’s, compared with a spread of one percentage point now.
Greece has largely based its brinkmanship is based on an assumption that the eurozone will ultimately capitulate to its demands to prevent chaos spreading across the currency bloc.
Yet it is striking that Spain and Portugal aren’t clamoring for a eurozone capitulation but are among the hardest of hard-liners in demanding Greece respect the conditions of its loan agreements. This isn’t just a negotiating tactic. Publicly, Madrid and Lisbon say they hope Greece will remain in the eurozone, but senior figures in Madrid and Lisbon are privately clear that they believe it would be better for Greece to leave than to risk the chaos of tearing up eurozone rules.
Of course, this partly reflects domestic politics: Madrid and Lisbon are acutely aware that conceding too much to Athens would embolden their own radical leftist opposition. But it also reflects a growing confidence that the Spanish and Portuguese economies—thanks to their own efforts and those of the eurozone—are now resilient enough to withstand the shock.
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Greece Is Stuck With the Euro, and Vice Versa
Editorial
April 29, 2015
Sometimes a country becomes so overridden by debt that it actually makes sense for it to default, abandon its currency and start over. Greece is not one of those countries.
That hasn't stopped a number of economists from arguing otherwise, however, and Prime Minister Alexis Tsipras's statement that he may call a referendum on any deal with creditors suggests Greeks might soon be asked to make a choice. If they are, they should trust their instincts (insofar as they can be measured by opinion polls) and stick with the euro.
It isn't that default or leaving a currency union is unthinkable. Far from it: The Hellenic peninsula was home to the first recorded default in the fourth century B.C., and modern Greece has reneged on its debts four times since gaining independence in 1829. Worldwide, more than 70 countries have exited currency unions and pegs since 1945, not all of them painfully.
The argument for Greece to go it alone has always been superficially attractive. For one thing, it should never have joined the euro in the first place, because it couldn't meet the European Union's debt-limit requirements. And the standard way for overextended countries to reboot their economies is to devalue their currencies, increase their exports and start growing again. So long as it's in the euro zone, Greece can't do this.
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Greece, Euro-Area Partners Target Deal by Sunday
Bloomberg
April 29, 2015
Greece and its euro-area partners are stepping up talks in a bid to break an impasse over bailout aid amid conflicting signals from the country’s government over its willingness to agree on long-stalled reforms.
With Greece facing a cash crunch in early May, both sides in a meeting of euro-area officials agreed to pursue intensive negotiations beginning on Thursday with the target of a preliminary deal by May 3, according to three people with knowledge of the talks. The aim would be for finance ministers to sign off on the accord by their next scheduled meeting on May 11, the officials said, asking not to be named because the talks are private.
“I’m confident that there’s a common will and that in particular the will of the Greek government is indeed to find a solution,” French Economy Minister Emmanuel Macron told reporters in Rome.
A key factor in a potential breakthrough may be the decision by Prime Minister Alexis Tsipras to intervene and play a major role in the negotiations to help the process along. That gave the signal that his government may at last be willing to do what’s needed to unlock the stalled bailout.
More
April 29, 2015
Greece and its euro-area partners are stepping up talks in a bid to break an impasse over bailout aid amid conflicting signals from the country’s government over its willingness to agree on long-stalled reforms.
With Greece facing a cash crunch in early May, both sides in a meeting of euro-area officials agreed to pursue intensive negotiations beginning on Thursday with the target of a preliminary deal by May 3, according to three people with knowledge of the talks. The aim would be for finance ministers to sign off on the accord by their next scheduled meeting on May 11, the officials said, asking not to be named because the talks are private.
“I’m confident that there’s a common will and that in particular the will of the Greek government is indeed to find a solution,” French Economy Minister Emmanuel Macron told reporters in Rome.
A key factor in a potential breakthrough may be the decision by Prime Minister Alexis Tsipras to intervene and play a major role in the negotiations to help the process along. That gave the signal that his government may at last be willing to do what’s needed to unlock the stalled bailout.
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What Greece Faces if It Defaults
New York Times
April 29, 2015
When President Adolfo Rodríguez Saá told Congress on Dec. 23, 2001 that “the Argentine state will suspend the payment of its foreign debt,” legislators jumped to their feet with joy. Their cheering quickly morphed into a chant of “Ar-gen-ti-na! Ar-gen-ti-na!”
Today, it is Greece, led by a recently elected populist left-wing party, Syriza, that is contemplating a similarly drastic unilateral declaration of independence from foreign creditors and international financial institutions. Economists like Nouriel Roubini, a professor at New York University, have long argued that “Greece should default and abandon the euro,” using “Argentine-style measures” to prevent “a disorderly fallout.” Far from the sky falling in, they say, Argentina’s economy soon roared back to prosperity; Greece should follow suit.
But were the years that followed really so rosy for the people of Argentina?
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Tsipras presses for May debt deal, threatens referendum
Reuters
April 28, 2015
Greek Prime Minister Alexis Tsipras said on Tuesday he was confident of an outline deal with international creditors within two weeks, after shaking up his negotiating team and sidelining his finance minister who has infuriated euro zone partners.
Tsipras threatened to call a referendum if lenders insist on demands deemed unacceptable by his leftist government, elected to scrap austerity. But the head of euro zone finance ministers said Greece needed loans urgently and did not have time for such a vote, which would be a costly and destabilising distraction.
Athens is weeks away from running out of cash, and talks with EU and IMF lenders on more aid have been deadlocked over their demands for Greece to implement reforms, including pension cuts and labour market liberalisation.
In his first major television interview since being elected in January, Tsipras said he expected a deal with creditors by May 9, three days before a debt payment to the IMF of about 750 million euros (537 million pounds) falls due. He ruled out a default but stressed the priority was to pay wages and pensions.
More
April 28, 2015
Greek Prime Minister Alexis Tsipras said on Tuesday he was confident of an outline deal with international creditors within two weeks, after shaking up his negotiating team and sidelining his finance minister who has infuriated euro zone partners.
Tsipras threatened to call a referendum if lenders insist on demands deemed unacceptable by his leftist government, elected to scrap austerity. But the head of euro zone finance ministers said Greece needed loans urgently and did not have time for such a vote, which would be a costly and destabilising distraction.
Athens is weeks away from running out of cash, and talks with EU and IMF lenders on more aid have been deadlocked over their demands for Greece to implement reforms, including pension cuts and labour market liberalisation.
In his first major television interview since being elected in January, Tsipras said he expected a deal with creditors by May 9, three days before a debt payment to the IMF of about 750 million euros (537 million pounds) falls due. He ruled out a default but stressed the priority was to pay wages and pensions.
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Tuesday, April 28, 2015
Greece’s Change of Face
Editorial
April 28, 2015
There’s new optimism over the prospects for a Greek debt deal after Athens on Monday nudged Finance Minister Yanis Varoufakis to the sidelines in negotiations with creditors. Based on the 4.4% rise in Athens’s stock market and the fall in bond yields to 11.9% from 12.6% that followed, investors hope a less confrontational approach will pave the way for a deal. But Mr. Varoufakis isn’t investors’ or creditors’ biggest problem. Greek voters are.
Deputy Foreign Minister Euclid Tsakalotos will now lead the team negotiating with other eurozone governments and the International Monetary Fund over Greece’s current bailout program. He is politically and ideologically close to far-left Prime Minister Alexis Tsipras, but he is expected to bring a less abrasive demeanor to the talks. He’d struggle to be any more disliked by Greece’s partners than Mr. Varoufakis, who in a Twitter post on Sunday compared himself to Franklin D. Roosevelt after skipping a dinner with other finance ministers Friday evening.
But there’s no way around the fact that voters in January elected a government led by the radical Syriza party with a mandate to tear up Greece’s old deal with creditors. Despite their many flaws, the bailout programs of 2010 and 2012 guided Greece back to modest economic growth, and Athens was able to issue bonds to private investors for the first time since the crisis began. Yet Syriza won a mandate for its pledge to secure creditors’ permission to return to the old tax-and-spend-and-spend norm while still receiving bailout cash.
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Why trust the Greeks?
by George L. Perry
Bloomberg
April 28, 2015
Greece’s government borrowing has become the most contentious sovereign debt crisis in memory and also the longest running. How this crisis gets resolved may determine whether the still fledgling eurozone survives in something like its present state. The whole episode reminds us that what made the eurozone attractive also left it vulnerable to shocks. Formerly soft currency member countries enjoyed lower borrowing costs because of the greatly lowered exchange rate risk. This helped countries like Greece to borrow, invest and prosper in the years after the euro was launched. In hindsight, this was probably an unsustainable boom under any conditions. But when the Great Recession hit, the downward impact on Greece was amplified, by both the great increase in debt and the absence of devaluation as a buffer. Greece could not meet its sovereign debt obligations, and the crisis was on.
Since the credit crisis first emerged in 2009, the other nations of Europe, the European Central Bank and the International Monetary Fund have all supported debt relief in many forms. And not surprisingly, the relief has always come with conditions on matters such as budget deficits, privatization, and government employment. Many of the conditions were politically unpopular in those countries and imposed fiscal austerity on the economy. The recession deepened into depression, the capacity to service debt worsened rather than improved, and the tensions between Greece and its creditors only intensified.
More
Bloomberg
April 28, 2015
Greece’s government borrowing has become the most contentious sovereign debt crisis in memory and also the longest running. How this crisis gets resolved may determine whether the still fledgling eurozone survives in something like its present state. The whole episode reminds us that what made the eurozone attractive also left it vulnerable to shocks. Formerly soft currency member countries enjoyed lower borrowing costs because of the greatly lowered exchange rate risk. This helped countries like Greece to borrow, invest and prosper in the years after the euro was launched. In hindsight, this was probably an unsustainable boom under any conditions. But when the Great Recession hit, the downward impact on Greece was amplified, by both the great increase in debt and the absence of devaluation as a buffer. Greece could not meet its sovereign debt obligations, and the crisis was on.
Since the credit crisis first emerged in 2009, the other nations of Europe, the European Central Bank and the International Monetary Fund have all supported debt relief in many forms. And not surprisingly, the relief has always come with conditions on matters such as budget deficits, privatization, and government employment. Many of the conditions were politically unpopular in those countries and imposed fiscal austerity on the economy. The recession deepened into depression, the capacity to service debt worsened rather than improved, and the tensions between Greece and its creditors only intensified.
More
Monday, April 27, 2015
Greece Weakens Yanis Varoufakis’s Influence in Bailout Talks
Wall Street Journal
April 27, 2015
Greece shook up its negotiating team in talks with international creditors, a move expected to reduce the influence of the country’s high-profile finance minister, whose combative style has alienated many European officials.
The move comes after eurozone finance ministers last week chastised Greek Finance Minister Yanis Varoufakis in Latvia over the lack of progress in Greece’s bailout talks. Latest opinion polls show Greek voters are also growing impatient with their government, raising the pressure on Athens to break the deadlock in the negotiations.
Mr. Varoufakis remains finance minister and will continue to represent Greece in meetings of European finance chiefs. But the team of negotiators around Mr. Varoufakis, responsible for much of the policy detail, will now be led by Greek officials who are seen in some European capitals as more promising interlocutors. Some of Mr. Varoufakis’s confidantes who were instead seen as obstructing progress in the talks have been sidelined.
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Tsipras reshuffles negotiating team to sideline Varoufakis
Financial Times
April 27, 2015
Greece’s outspoken finance minister Yanis Varoufakis has been sidelined after three months of fruitless talks with international creditors to unlock €7.2bn in bailout funds, heartening investors and sparking a rally on the Athens stock market.
Eurozone officials said they were encouraged by the move by Alexis Tsipras, Greece’s prime minister, to overhaul his bailout negotiating team in the wake of an acrimonious meeting of eurozone finance ministers in Riga last week.
The shake-up comes as Athens faces questions over whether it can meet this month’s wage and pension bill of nearly €2bn as well as a €750m loan repayment due to the International Monetary Fund on May 12.
The Athens stock market rose nearly 4.4 per cent on the news and borrowing costs on Greece’s July 2017 bonds were down almost 4 percentage points from Friday’s close to 21 per cent. Yields on Greece’s benchmark 10-year bonds were down a full percentage point at 11.4 per cent.
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The coming defaults of Greece
Vox
April 27, 2015
It seems that there will be no agreement between Greece and its Eurozone partners. Short of cash, the Greek government will have no choice but to suspend payment of its maturing debts. This column looks at what happens next. In brief, it will be very much up to the ECB to decide.
When thinking about Greece’s dilemma, two facts from Reinhart and Rogoff (2009) research are highly relevant:
- Defaults on public debts are pretty mundane events; and
- Greece is historically the world’s leading serious defaulter.
The crucial observation is that there is no automatic link between a default and monetary-union membership. As we know from previous experiments of government default within the dollar monetary union – the defaults of Orange County in California and Detroit in Michigan – a sub-central government can default and keep the currency. The unique characteristics of such events are that: 1) an exchange-rate depreciation cannot help shift expenditure to the defaulting region’s production; and 2) there is no local central bank to provide liquidity to both the government and commercial banks during the hard phase of the default.
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Greece Just Clipped Varoufakis’s Wings
by Nikos Chrysoloras & Marcus Bensasson
Bloomberg
April 27, 2015
Greece reshuffled its bailout-negotiating team, reining in Finance Minister Yanis Varoufakis, after three months of talks with creditors failed to unlock aid and a meeting with his euro-area counterparts ended in acrimony.
The coordination of the day-to-day efforts to strike a deal with creditors was handed to Deputy Foreign Minister Euclid Tsakalotos, a Greek government official said in an e-mail to reporters Monday. Varoufakis will supervise the political negotiations with euro-area member states and the International Monetary Fund. No change was announced to Greece’s representation in euro-area finance ministers’ meetings, which Varoufakis attends.
A Eurogroup meeting in Riga, Latvia on Friday descended into name-calling as the currency bloc’s finance ministers hurled abuse at their Greek colleague, accusing him of being a time-waster, a gambler and an amateur. Still, the 54-year-old academic-turned-politician in the government of Prime Minister Alexis Tsipras remains popular at home, with 55 percent of respondents in an Alco survey published in Proto Thema newspaper Sunday expressing a positive view about him.
“This move squares the circle, because it doesn’t look like Tsipras is surrendering by firing Varoufakis, but it to some extent has the same result,” said Michael Michaelides, a strategist at Royal Bank of Scotland Group Plc in London. “It doesn’t change the issues, but given the interpersonal nature of the Eurogroup, and since the finance ministers still remain in charge, this is significant.”
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Bloomberg
April 27, 2015
Greece reshuffled its bailout-negotiating team, reining in Finance Minister Yanis Varoufakis, after three months of talks with creditors failed to unlock aid and a meeting with his euro-area counterparts ended in acrimony.
The coordination of the day-to-day efforts to strike a deal with creditors was handed to Deputy Foreign Minister Euclid Tsakalotos, a Greek government official said in an e-mail to reporters Monday. Varoufakis will supervise the political negotiations with euro-area member states and the International Monetary Fund. No change was announced to Greece’s representation in euro-area finance ministers’ meetings, which Varoufakis attends.
A Eurogroup meeting in Riga, Latvia on Friday descended into name-calling as the currency bloc’s finance ministers hurled abuse at their Greek colleague, accusing him of being a time-waster, a gambler and an amateur. Still, the 54-year-old academic-turned-politician in the government of Prime Minister Alexis Tsipras remains popular at home, with 55 percent of respondents in an Alco survey published in Proto Thema newspaper Sunday expressing a positive view about him.
“This move squares the circle, because it doesn’t look like Tsipras is surrendering by firing Varoufakis, but it to some extent has the same result,” said Michael Michaelides, a strategist at Royal Bank of Scotland Group Plc in London. “It doesn’t change the issues, but given the interpersonal nature of the Eurogroup, and since the finance ministers still remain in charge, this is significant.”
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Friday, April 24, 2015
Scrip tease
April 24, 2015
For the third time in five years, Greece is looking into the abyss. As in 2010 and 2012 the Hellenic Republic looks likely to run out of cash, and may soon miss scheduled debt repayments. But this time Syriza, Greece’s new ruling party, has alienated its creditors, making the previous solution (a co-ordinated default, coupled with a bail-out) harder to achieve. Yet a unilateral default might prompt the European Central Bank to withdraw its lifeline from Greece’s banks, leaving the country little choice but to abandon the euro—an outcome 84% of Greeks want to avoid. As Syriza scrabbles around for alternatives, a monetary trick sometimes used in such emergencies—issuing temporary IOUs, or “scrip”, in lieu of cash—is starting to look tempting.
Scrip can help governments conserve hard cash, something Greece certainly needs to do. It has debts of around €315 billion ($340 billion)—175% of GDP—and must make payments of €2.5 billion before the end of June. To find that cash it could start making some of its regular payments in paper IOUs, which can be used to pay taxes at a later date, rather than euros. The bulk of the Greek state’s annual outgoings of €80 billion is paid to its citizens—€22 billion in salaries, €35 billion in benefits. They would have little choice if the government decided to pay them in scrip instead of euros. If all government salaries had been paid in scrip last year, the country would have had a surplus of €27 billion euros, leaving plenty to pay back foreign creditors. Scrip itself would soon become a means of exchange.
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Euro or Drachma, Greece Must Finally Choose
Editorial
April 21, 2015
Greek Prime Minister Alexis Tsipras seems to be about as good at managing down as he is at managing up. Which is to say: not very.
Tsipras and his neo-Marxist political party, Syriza, long ago alienated their European creditors with their demands to disregard the terms of the country's bailout, boost public spending and nevertheless stay in the euro. Now Greece is borrowing from local governments to make ends meet, prompting cries of protest from Athens to Zakynthos.
To ask whether Tsipras is entirely or only partly to blame for this mess is by now beside the point. Europe has dug in and is apparently preparing to let the so-called Grexit happen. The question for Tsipras is therefore what he should do if Europe insists that Greece abide by the failed bailout program. If he intends to abandon it and default on Greece's debt -- with the risk that this would force Greece out of the euro system -- he should say so, and ask Greek voters to support that position in a referendum.
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Hellenic bruises
April 25, 2015
Contrarian investors love terrifying headlines. The more unloved the country, the more undervalued its assets and the more money to be made as its fortunes turn. Moneymen who shrewdly exploited the on-again-off-again panic regarding Greece’s finances have made handsome profits in recent years. In the second half of 2012, for instance, holders of Greek government bonds doubled their money. In the second half of 2013 the main stockmarket index rose by almost 40%. It is striking, therefore, how hard it is these days to find financiers willing to make any bets on Greece at all.
The country is once again running out of money. On April 24th euro-zone finance ministers are due to meet in Latvia to decide whether to provide a lifeline by disbursing the last instalment of the existing bail-out package. The problem is that Greece’s new government has refused to implement reforms promised by its predecessor, and has not proposed alternatives its creditors consider adequate. Talks continue, but the two sides remain far apart. If Greece does not secure more cash, it will soon have to default either on its own citizens (see Free exchange) or on the IMF and the European Central Bank (ECB). That, in turn, could prompt the ECB to withhold support for Greek banks, forcing Greece to impose capital controls and perhaps to withdraw from the euro.
All manner of financial indicators suggest disaster is imminent. The Greek government’s three-year bonds now yield a dizzying 27%. Ten-year government bonds are trading at their highest yields (and therefore lowest prices) since 2012 (see chart). Credit-default swaps, which offer insurance against a default, suggest an 80% chance of one within five years. Listed Greek firms are trading at less than 60% of their book value, on average. Greek bank stocks are down by 75% compared to this time last year.
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Greek Contagion Is Not a Something, Not a Nothing
Bloomberg
April 24, 2015
Austrian-British philosopher Ludwig Wittgenstein argued that trying to discuss private sensations such as pain is impossible because "it is not a something, but not a nothing either." That enigmatic statement is a useful way to reflect on whether a bad outcome for Greece will have a contagious effect on other members of the euro zone.
Contagion refers to the risk that Greece would infect its neighbors if it either defaulted on its debts or exited the euro. Investors, for example, might decide that Portugal is next in the firing line if Greece left the euro. They would demand a higher financial reward for taking on the greater risk of default, and thus drive up Portugal's borrowing costs. So far, apart from an almost imperceptible blip higher in borrowing costs in the past week for Portugal, Spain and Italy versus Germany (the euro zone's AAA rated benchmark borrower), Greece's inability to reach a deal on getting fresh money from its creditors hasn't rattled markets:
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Greece's Varoufakis Takes Hammering From Riled EU Ministers
Bloomberg
April 24, 2015
Euro-area finance ministers hurled abuse at Greek Finance Minister Yanis Varoufakis behind closed doors as they shut down his bid to find a shortcut to releasing financial aid.
Jeroen Dijsselbloem, the Dutch chairman of the euro-zone finance chiefs’ group, categorically ruled out making a partial aid payment in exchange for a narrower program of reforms after a stormy meeting in Riga, Latvia, in which Varoufakis was heavily criticized by his euro-area colleagues over his failure to deliver economic reforms.
Euro-area finance chiefs said Varoufakis’s handling of the talks was irresponsible and accused him of being a time-waster, a gambler and an amateur, a person familiar with the conversations said, asking not to be named because the discussions were private.
“It was a very critical discussion and it showed a great sense of urgency around the room,” Dijsselbloem said at a press conference after the meeting. Asked if there was any chance of a partial disbursement, he said, “The answer can be very short: No.”
More
April 24, 2015
Euro-area finance ministers hurled abuse at Greek Finance Minister Yanis Varoufakis behind closed doors as they shut down his bid to find a shortcut to releasing financial aid.
Jeroen Dijsselbloem, the Dutch chairman of the euro-zone finance chiefs’ group, categorically ruled out making a partial aid payment in exchange for a narrower program of reforms after a stormy meeting in Riga, Latvia, in which Varoufakis was heavily criticized by his euro-area colleagues over his failure to deliver economic reforms.
Euro-area finance chiefs said Varoufakis’s handling of the talks was irresponsible and accused him of being a time-waster, a gambler and an amateur, a person familiar with the conversations said, asking not to be named because the discussions were private.
“It was a very critical discussion and it showed a great sense of urgency around the room,” Dijsselbloem said at a press conference after the meeting. Asked if there was any chance of a partial disbursement, he said, “The answer can be very short: No.”
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Fairfax optimistic about prospects of a Greek debt deal
Reuters
April 23, 2015
Fairfax Financial Holdings , which bet on the success of a Greek turnaround last year, said on Thursday it is confident that Greece will reach a deal with its counterparts in the euro zone and remain a part of the currency bloc.
Fairfax last year became a key player in the bailout of one of the country's largest lenders Eurobank, after it bought a 13.6 percent stake in the bank. The Toronto-based firm recently boosted its position in the bank further, even as Greek banks suffered deposit outflows in the face of fears over the Greek government's extended standoff with euro zone partners over reforms.
"We believe a compromise will be reached," said Fairfax CEO Prem Watsa, who is a well known contrarian investor. "We meet with government officials routinely. We believe Greeks want to stay in the Euro group and that within that construct they are trying to do the best deal possible for the people of Greece."
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April 23, 2015
Fairfax Financial Holdings , which bet on the success of a Greek turnaround last year, said on Thursday it is confident that Greece will reach a deal with its counterparts in the euro zone and remain a part of the currency bloc.
Fairfax last year became a key player in the bailout of one of the country's largest lenders Eurobank, after it bought a 13.6 percent stake in the bank. The Toronto-based firm recently boosted its position in the bank further, even as Greek banks suffered deposit outflows in the face of fears over the Greek government's extended standoff with euro zone partners over reforms.
"We believe a compromise will be reached," said Fairfax CEO Prem Watsa, who is a well known contrarian investor. "We meet with government officials routinely. We believe Greeks want to stay in the Euro group and that within that construct they are trying to do the best deal possible for the people of Greece."
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Greece’s Eerie Calm
by Nikos Konstandaras
New York Times
April 23, 2015
As Greece teeters on the edge of default and possible exit from the European common currency, foreign officials cannot understand how Greek government officials can appear so sanguine.
An explanation of the government’s motives and behavior can be found in spheres beyond the economy, where the government has moved swiftly to impose its agenda on domestic and foreign policy — to the alarm of allies, opposition parties and investors.
Nowhere has the government shown an appetite to compromise. This mentality is rooted in a century of conflict between left and right, when foreign powers helped right-wing governments maintain power at the expense of leftist forces. Now, with a radical leftist party, Syriza, in power for the first time, working through this situation could be as self-destructive as it is inevitable.
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New York Times
April 23, 2015
As Greece teeters on the edge of default and possible exit from the European common currency, foreign officials cannot understand how Greek government officials can appear so sanguine.
An explanation of the government’s motives and behavior can be found in spheres beyond the economy, where the government has moved swiftly to impose its agenda on domestic and foreign policy — to the alarm of allies, opposition parties and investors.
Nowhere has the government shown an appetite to compromise. This mentality is rooted in a century of conflict between left and right, when foreign powers helped right-wing governments maintain power at the expense of leftist forces. Now, with a radical leftist party, Syriza, in power for the first time, working through this situation could be as self-destructive as it is inevitable.
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Thursday, April 23, 2015
Greek finance minister tells magazine: Grexit no bluff if more austerity imposed
April 23, 2015
The risk that Greece would have to leave the euro if it has to accept more austerity is no bluff, Greek Finance Minister Yanis Varoufakis told a French magazine, saying that no one could predict what the consequences of such an exit would be.
In a conversation with philosopher Jon Elster conducted at the end of March and published in France's Philosophie Magazine, Varoufakis, a specialist in game theory, said this was not the time to bluff over Greece's debt talks.
"We cannot bluff anymore. When I say that we'll end up leaving the euro, if we have to accept more unsustainable austerity, this is no bluff," Varoufakis is quoted as saying.
Greek Prime Minister Alexis Tsipras called for a speeding up of work to conclude a reform-for-cash deal with euro zone creditors to keep his country afloat after talks with German Chancellor Angela Merkel on Thursday.
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Greece: Down and Probably Out
by Steve H. Hanke
Globe Asia
May 2015
Led by the charismatic Alexis Tsipras, the Syriza party took office in Athens on January 26th. The most prominent member of the new Prime Minister’s cabinet is Yanis Varoufakis, the Finance Minister. He is an economics professor, with a complete repertoire of anti-capitalist rhetoric. And with government spending amounting to 58.5% of Greek GDP, Varoufakis’ hot anti-austerity harangues have turned the meaning of the word “austerity” on its head. After three months in office, the Syriza coalition has accomplished virtually nothing. There have been no commitments — credible or not — to do anything.
As Greece’s economic drama (read: crisis) moves towards its final stage, people are anxious to see how it will end. “I looked up the answers in the history books,” writes John Dizard in the Financial Times, “it works better than trying to get inside information from the cabinet, since there is no information on the inside.”
It turns out that this is not the first time Greece has been in financial hot water. Indeed, that Balkan country has been a serial deadbeat. Following its recognition as a state in 1832, Greece spent most of the remainder of the 19th century under the control of creditors. The pattern started with a default in 1832. In consequence, Greece’s finances were put under French administration. Following Greece’s defeat at the hands of Turkey in 1897, Greece’s fiscal house was entrusted to a Control Commission. During the 20th century, the drachma was one of the world’s worst currencies. It recorded the world’s sixth highest hyperinflation. In October 1944, Greece’s monthly inflation rate hit 13,800%.
More
Globe Asia
May 2015
Led by the charismatic Alexis Tsipras, the Syriza party took office in Athens on January 26th. The most prominent member of the new Prime Minister’s cabinet is Yanis Varoufakis, the Finance Minister. He is an economics professor, with a complete repertoire of anti-capitalist rhetoric. And with government spending amounting to 58.5% of Greek GDP, Varoufakis’ hot anti-austerity harangues have turned the meaning of the word “austerity” on its head. After three months in office, the Syriza coalition has accomplished virtually nothing. There have been no commitments — credible or not — to do anything.
As Greece’s economic drama (read: crisis) moves towards its final stage, people are anxious to see how it will end. “I looked up the answers in the history books,” writes John Dizard in the Financial Times, “it works better than trying to get inside information from the cabinet, since there is no information on the inside.”
It turns out that this is not the first time Greece has been in financial hot water. Indeed, that Balkan country has been a serial deadbeat. Following its recognition as a state in 1832, Greece spent most of the remainder of the 19th century under the control of creditors. The pattern started with a default in 1832. In consequence, Greece’s finances were put under French administration. Following Greece’s defeat at the hands of Turkey in 1897, Greece’s fiscal house was entrusted to a Control Commission. During the 20th century, the drachma was one of the world’s worst currencies. It recorded the world’s sixth highest hyperinflation. In October 1944, Greece’s monthly inflation rate hit 13,800%.
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US alarmed by Greek energy alliance with Russia
Daily Telegraph
April 23, 2015
The US is scrambling to head off a Greek pipeline deal with Russia, fearing a disastrous change in the strategic balance of the Eastern Mediterranean as Greece’s radical-Left government drifts into the Kremlin’s orbit.
Ernest Moniz, the US Energy Secretary, said his country is pushing for an alternative gas pipeline from Azerbaijan that would help break the stranglehold that Russian state-controlled firm Gazprom has on European markets.
“Diversified supplies are important and we strongly support the ‘Southern Corridor’ to bring Caspian gas to Europe,” he told a group of reporters on the margins of CERAWeek oil and gas forum in Houston.
He insisted that it was vital to uphold “collective energy security” in Europe.
Greece’s foreign minister, Nikos Kotzias, said Gazprom made a “very good offer”, with guaranteed gas supplies for 10 years at good prices. He asked how his Syriza government could justify turning down such an opportunity unless the Western powers could come up with something better.
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At this point, only a miracle can save Greece from disaster
Forbes
April 23, 2015
The debt-troubled nation must grasp the only lifeline left and negotiate with creditors now to save itself.
The new leftist Greek government is running out of cash fast. Elected on the promise to disburse large amounts to those hurt by austerity, it cannot even pay the regular obligations of the State. Within two to four weeks, Greece will not be able to pay salaries, pensions and loan obligations to the International Monetary Fund and other lenders. The clock is ticking and time is running out. Greece must grasp the only lifeline left and negotiate with creditors now to save itself.
By the middle of May, Greece will need to refinance $3 billion of its Treasury bills. Typically, Greek banks buy most T-bills, but the European Central Bank has placed restrictions on these purchases. As a result, Greece is faced with the burden of covering $756 million worth of new T-bills, as well as repay $836 million to the International Monetary Fund (IMF) on May 11. That’s a total of about $1.6 billion, which doesn’t include paying salaries, pensions and other government expenses.
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On the Gredge
April 25, 2015
Eventually every long-running drama, from “Downton Abbey” to “Dr Who”, feels formulaic. So it is with Greece’s debt saga. For five years it has followed a wearily familiar script of unpayable debts, aborted reforms and 11th-hour compromises that let the country stagger on inside the single currency. That history has lulled many into expecting the usual denouement in the latest wrangling between Greece’s Syriza government and its European creditors. But this is looking ever less likely. Unless Syriza suddenly capitulates—and a meeting of euro-zone finance ministers on April 24th is one of its last chances to do so—Greece will fail to pay its creditors. If that happens, its exit from the euro will be just a step away.
Greece has already restructured its debts once, in 2012. It now owes money mainly to other European governments, the European Central Bank (ECB) and the IMF. These official creditors have slashed interest rates and stretched out maturities, but not enough. With a debt stock of 175% of GDP, Greece will need more relief. Most European politicians quietly accept this. The danger lies in a chaotic default born of brinkmanship. The Greek government has bills to pay and no money to pay them. It is resorting to desperate measures. This week Alexis Tsipras, the prime minister, ordered local-government bodies to move spare cash to the central bank (see article). That might buy a few weeks. But in the end Greece will not be able to pay its pensioners, let alone its creditors, without a deal with its European paymasters that unlocks new loans.
That seems increasingly unlikely, for three reasons. The first is a deep loss of trust on the part of Greece’s creditors. The euro zone has always had only a faint version of the solidarity that characterises a true union. But since Syriza came to power that has been ripped apart. The stunts and stumbles of Greece’s inexperienced government are a factor. But the bigger problem has been Syriza’s unwillingness, or inability, to name, let alone implement, the reforms that it will undertake in return for its next tranche of money. Once Greece’s creditors might have taken general promises; now they want specifics.
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A New Deal for Greece
by Yanis Varoufakis
Project Syndicate
April 23, 2015
Three months of negotiations between the Greek government and our European and international partners have brought about much convergence on the steps needed to overcome years of economic crisis and to bring about sustained recovery in Greece. But they have not yet produced a deal. Why? What steps are needed to produce a viable, mutually agreed reform agenda?
We and our partners already agree on much. Greece’s tax system needs to be revamped, and the revenue authorities must be freed from political and corporate influence. The pension system is ailing. The economy’s credit circuits are broken. The labor market has been devastated by the crisis and is deeply segmented, with productivity growth stalled. Public administration is in urgent need of modernization, and public resources must be used more efficiently. Overwhelming obstacles block the formation of new companies. Competition in product markets is far too circumscribed. And inequality has reached outrageous levels, preventing society from uniting behind essential reforms.
This consensus aside, agreement on a new development model for Greece requires overcoming two hurdles. First, we must concur on how to approach Greece’s fiscal consolidation. Second, we need a comprehensive, commonly agreed reform agenda that will underpin that consolidation path and inspire the confidence of Greek society.
More
Project Syndicate
April 23, 2015
Three months of negotiations between the Greek government and our European and international partners have brought about much convergence on the steps needed to overcome years of economic crisis and to bring about sustained recovery in Greece. But they have not yet produced a deal. Why? What steps are needed to produce a viable, mutually agreed reform agenda?
We and our partners already agree on much. Greece’s tax system needs to be revamped, and the revenue authorities must be freed from political and corporate influence. The pension system is ailing. The economy’s credit circuits are broken. The labor market has been devastated by the crisis and is deeply segmented, with productivity growth stalled. Public administration is in urgent need of modernization, and public resources must be used more efficiently. Overwhelming obstacles block the formation of new companies. Competition in product markets is far too circumscribed. And inequality has reached outrageous levels, preventing society from uniting behind essential reforms.
This consensus aside, agreement on a new development model for Greece requires overcoming two hurdles. First, we must concur on how to approach Greece’s fiscal consolidation. Second, we need a comprehensive, commonly agreed reform agenda that will underpin that consolidation path and inspire the confidence of Greek society.
More
Wednesday, April 22, 2015
Greece’s Long and Painful Odyssey
Wall Street Journal
April 22, 2015
On April 23, 2010, George Papandreou stood in front of a camera on Kastelorizo, the tiny eastern-Aegean island farthest removed from the Greek mainland. With its idyllic harbor as an incongruous backdrop, he announced that Greece had requested a bailout from the European Union and the International Monetary Fund. It was the beginning of a long and painful odyssey. Five years later, a safe return to the Ithaca of growth, market access and unquestionable eurozone membership is less certain than ever.
A policy disaster of this magnitude was entirely avoidable. In the fateful days leading up to that first bailout, investment bankers from Lazard had prepared a plan for rescheduling Greek debt. But the Papandreou government abandoned that idea under pressure from the European Central Bank, Germany and France, which were afraid of the effects a restructuring would have on the banking system. They insisted instead that Greece commit to repaying its debts in full. The IMF, whose staff saw that a program of harsh fiscal austerity, with no devaluation and no restructuring, was bound to fail, acquiesced.
For a time, the plan appeared to be working. In the initial months after the deal, the Papandreou government was hailed by creditors as a team of committed reformers. Finance Minister George Papaconstantinou received a standing ovation at the fall meetings of the IMF in 2010. But markets panicked after the tone-deaf Deauville agreement, as it raised the specter of the default of advanced economies for the first time in decades. As Ireland requested its own bailout, reforms in Athens stalled.
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What happens when a country defaults?
Prospect
April 22, 2015
Why are we asking this now?
Greece is at risk of defaulting on its debts. It has been funneled huge amounts of money by international organisations such as the IMF, and has borrowed large amounts of money from private investors on international money markets. But the continuing downward trajectory of Greece’s economy and the tough rules that have been imposed on the country by lenders mean that the country is running out of money. In coming weeks Greece faces a number of repayment deadlines as well as a large salary bill for government employees. Analysts suggest that the country will not be able to meet these payments.
What do we mean by “default?”
When a government—or company—is unable to meet debt repayments, then it is said to be in default. In such cases, a one-off failure to make a payment is taken as a sign that the government in question is unable to pay back not only that specific debt, but all other debt. There then follows a complete collapse of market and international economic sentiment towards the defaulting government’s financial position.
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Europe's Collision Course With Greece
Bloomberg
April 22, 2015
The brinkmanship over Greece and its debts continues. A meeting of finance ministers in Riga on Friday is likely to pass, like many previous make-or-break moments, without resolution. The European Union isn't deviating, and neither is Athens. Before much longer, though, something really will have to give -- and it seems ever more probable that, when it does, the news will be bad.
Confidence has firmed across Europe that a Greek default won't much harm any other country -- indeed, that the rest of the EU might actually be stronger if the Greeks are taught a lesson. This theory is wrong. If it's pressed into action, Europe will come to repent its biggest miscalculation since the creation of the euro.
EU governments are hardening their insistence on an overt Greek surrender. The terms of the existing bailout program, they say, must be honored in full before talks on a new one can start -- and meanwhile, there'll be no more money. In plain terms, the Syriza government led by Prime Minister Alexis Tsipras must not only break its promise to voters but be seen by all to have broken it.
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European Central Bank Squeezes Greek Banks, Tightening Access to Loans
New York Times
April 21, 2015
As Greece scrambles to secure a financing deal with Europe before running out of cash, the European Central Bank is tightening the vise on the country’s ailing banks by curtailing access to desperately needed emergency loans.
The European Central Bank is now demanding that the value of the collateral that Greek banks post at their own central bank to secure these loans be reduced by as much as 50 percent, according to people who have been briefed on these discussions but who were not authorized to discuss them publicly.
And, these people say, if the Greek government and Europe remain at an impasse on an agreement about austerity measures, these so-called haircuts could increase further.
The move highlights the hard-line approach taken by the E.C.B. toward Greece as it presses the new government to reach an agreement with its creditors.
With the value of the collateral being reduced so significantly, banks will be hard pressed to obtain the money they need to survive.
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Tuesday, April 21, 2015
Varoufakis Sees Differences Narrowing in Creditor Talks
Bloomberg
April 21, 2015
Greece and its creditors are narrowing their differences as officials on both sides recognize that the best chance for success is an accord that leaves them all somewhat unsatisfied, Finance Minister Yanis Varoufakis said.
“The convergence is absolutely clear,” Varoufakis told reporters in Athens late on Tuesday. Both sides “have invested a huge amount in achieving an agreement, and neither they nor we will let the opportunity slip to arrive at an agreement that’s clearly to the benefit of everyone.”
Greece has been struggling to make progress toward releasing financial aid since striking a deal to extend its bailout program in February. The anti-austerity coalition government has repeatedly expressed confidence that a deal to free bailout disbursements was imminent, only to be refuted by euro area officials seeking concrete steps.
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Mythology that blocks progress in Greece
Financial Times
April 21, 2015
The Greek epic continues. It will not end well if the people involved do not recognise they are clinging on to myths. Here are six, each of which poses intellectual and emotional obstacles to reaching a solution.
A Greek exit would help the eurozone. “Will no one rid me of this turbulent priest?” This is the question Henry II is supposed to have asked about Archbishop Thomas Becket. Wolfgang Schäuble, Germany’s finance minister, must think much the same of his Greek partners. For the English king, however, the gratification of his wish was a disaster. A similar thing is likely to be true if Greece leaves. Yes, if Greece suffered a calamitous aftermath, populist campaigns elsewhere would be less effective. But euro membership would cease to be irrevocable. Each crisis could trigger destabilising speculation.
A Greek exit would help Greece. Many believe a weak new drachma offers a painless path to prosperity. But this is only likely to be true if the economy can easily expand its production of internationally competitive goods and services. Greece cannot. And the immediate consequences are likely to include exchange controls, defaults, a halt to foreign credit, and more political turbulence. Stable money counts for something, particularly in a mismanaged country. Ditching it carries a cost.
It is Greece’s fault. Nobody was forced to lend to Greece. Initially, private lenders were happy to lend to the Greek government on much the same terms as to the German government. Yet the nature of Greek politics, tellingly described in The 13th Labour of Hercules by Yannis Palaiologos , was no secret.
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The IMF's big Greek mistake
Bruegel
April 21, 2015
The Greek government's mounting financial woes are leading it to contemplate the previously unthinkable: defaulting on a loan from the International Monetary Fund. Instead of demanding repayment and further austerity, the IMF should recognize its responsibility for the country's predicament and forgive much of the debt.
Greece's onerous obligations to the IMF, the European Central Bank and European governments can be traced back to April 2010, when they made a fateful mistake. Instead of allowing Greece to default on its insurmountable debts to private creditors, they chose to lend it the money to pay in full.
At the time, many called for immediately “restructuring” of privately-held debt, thus imposing losses on the banks and investors who had lent money to Greece. Among them were several members of the IMF’s Board and Karl Otto Pohl, a former president of the Bundesbank and a key architect of the euro. The IMF and European authorities responded that restructuring would cause global financial mayhem. As Pohl candidly noted, that was merely a cover for bailing out German and French banks, which had been among the largest enablers of Greek profligacy.
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Greek leaders under fire for ordering councils to hand over cash
Financial Times
April 21, 2015
Greece’s anti-austerity government faced the first serious rebellion over its handling of a deepening fiscal crisis after it caved in to international pressure and ordered local authorities to hand over their spare cash.
A group of prominent mayors reacted furiously to the move on Tuesday, which followed repeated demands from Greece’s official creditors, saying it amounted to an illegal seizure of municipal funds by the Syriza-led central government. The mayors said the order by decree violated the constitution and they threatened legal action in Greece’s highest court.
George Kaminis, the non-partisan mayor of Athens, said the order was a blow to the independence of local government and could “asphyxiate” the normal running of the capital. “Apart from the fact that this move is clearly unconstitutional, it takes local authorities by surprise . . . and threatens their capacity to contribute to social cohesion and urban development,” Mr Kaminis told a meeting of EU mayors in Vienna on Tuesday.
The backlash underlines how few palatable options remain open to Athens in its frantic hunt for cash. The government’s defiant stance towards the eurozone has so far proved popular with Greeks. But an opinion poll published on Tuesday showed Syriza’s approval rating fell to 45 per cent from 68 per cent last month.
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ECB Is Studying Curbs on Greek Bank Support
Bloomberg
April 21, 2015
The European Central Bank is studying measures to rein in emergency funding for Greek banks as resistance to further aiding the country’s stricken lenders grows among policy makers, people with knowledge of the discussions said.
ECB staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece, the people said, asking not to be named as the matter is private. While adjusting these so-called haircuts hasn’t been formally discussed by the Governing Council, it may be considered if Greece’s leaders fail to quickly convince euro-area finance ministers they can reform their economy and secure bailout funds, one of the people said. Greek bank stocks slid.
Greek lenders are mostly locked out of regular ECB cash tenders while the government, which holds talks with euro-area partners in Riga this week, tussles with its creditors over the much-needed aid payments. Instead, the banks currently have access to about 74 billion euros ($79 billion) of Emergency Liquidity Assistance from their own central bank -- an amount that has been rising and which will be reviewed this week.
There’s “no doubt” that the ECB is losing patience with Greece, said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “Greek banks will need more funding before long, so in a way larger haircuts or a lower ELA cap are equivalent.”
More
April 21, 2015
The European Central Bank is studying measures to rein in emergency funding for Greek banks as resistance to further aiding the country’s stricken lenders grows among policy makers, people with knowledge of the discussions said.
ECB staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece, the people said, asking not to be named as the matter is private. While adjusting these so-called haircuts hasn’t been formally discussed by the Governing Council, it may be considered if Greece’s leaders fail to quickly convince euro-area finance ministers they can reform their economy and secure bailout funds, one of the people said. Greek bank stocks slid.
Greek lenders are mostly locked out of regular ECB cash tenders while the government, which holds talks with euro-area partners in Riga this week, tussles with its creditors over the much-needed aid payments. Instead, the banks currently have access to about 74 billion euros ($79 billion) of Emergency Liquidity Assistance from their own central bank -- an amount that has been rising and which will be reviewed this week.
There’s “no doubt” that the ECB is losing patience with Greece, said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “Greek banks will need more funding before long, so in a way larger haircuts or a lower ELA cap are equivalent.”
More
Monday, April 20, 2015
Constancio Says Greek Default Doesn’t Mean Automatic Euro Exit
Bloomberg
April 20, 2015
European Central Bank Vice President Vitor Constancio said Greece might not have to leave the euro even if it defaults on its debt.
“We are convinced in the ECB that there will be no Greek exit,” Constancio said at the European parliament in Brussels on Monday. “The Treaty does not foresee that a country can be formally, legally expelled from the euro. So, if anything, some choice of that nature would have to be taken by the Greek government, not by us.”
The ECB is supporting Greek lenders, and by extension the economy, with emergency liquidity as concern over the government’s negotiating tactics for international aid payments spark deposit outflows. In a sign of the severity of the crisis, the government has issued a decree that forces local governments to transfer cash balances to the central bank.
More
April 20, 2015
European Central Bank Vice President Vitor Constancio said Greece might not have to leave the euro even if it defaults on its debt.
“We are convinced in the ECB that there will be no Greek exit,” Constancio said at the European parliament in Brussels on Monday. “The Treaty does not foresee that a country can be formally, legally expelled from the euro. So, if anything, some choice of that nature would have to be taken by the Greek government, not by us.”
The ECB is supporting Greek lenders, and by extension the economy, with emergency liquidity as concern over the government’s negotiating tactics for international aid payments spark deposit outflows. In a sign of the severity of the crisis, the government has issued a decree that forces local governments to transfer cash balances to the central bank.
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Greece Orders Public Entities to Store Cash in Central Bank
April 20, 2015
Greece’s government issued a decree Monday requiring public bodies such as state-owned companies and public pension funds to transfer their cash reserves to the central bank as the country’s cash reserves continue to dry up.
The decree, published in the government gazette late Monday, came as no surprise, the government having telegraphed the move last week. But it still represents evidence of an escalating cash squeeze amid renewed concerns of Greek default.
Greece’s parliament has recently passed a bill allowing the Greek government to borrow funds held by state bodies and social-security funds via repurchase agreements, or repos, and has borrowed money from entities such as the central bank and the country’s job centers.
But this decree makes the transfer of state bodies’ cash reserves to the Bank of Greece compulsory, excluding the country’s social-security funds.
“This practice already exists in several countries of the European Union,” a senior government official said Monday, adding that the state has the ability to borrow cash from state bodies that don’t have an immediate need for it, but for no more than 15 days.
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New Greek Law Could Release Prominent Left-Wing Terrorist
Wall Street Journal
April 20, 2015
Greek lawmakers approved on Monday a controversial prison ovrehaul that could lead to the early release of a left-wing terrorist convicted of killing U.S. and British officials and which has drawn criticism from the American embassy in Athens.
The law, designed to ease overcrowding in the country’s congested prison system, would abolish Greece’s high-security prisons and allows for the compassionate release of elderly and severely disabled inmates.
Among them is 53 year-old convicted terrorist Savvas Xiros.
Mr. Xiros is serving multiple life sentences for his involvement in Greece’s notorious November 17 terror group. The group, before it was largely disbanded in 2002, is charged with carrying out a string of almost two dozen assassinations in its 23-year history, including the murder of five U.S. embassy officials.
In an unusual step last week, as the legislation was being debated in Greece’s parliament, the U.S. embassy tweeted a tribute to one of the slain officials Mr. Xiros was convicted of killing. It reminded followers of the terrorist’s violent history that included the murder of one other American, a rocket attack on the U.S. embassy, as well as a series of other murders, attempted murders, bombings and robberies.
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Let Greece Stumble Out of the Euro
Bloomberg
April 20, 2015
As the weeks since the Greek election have rolled into months, the government elected in January seems no closer to resolving the dichotomy between its anti-austerity inclinations and the reforms its creditors demand as the cost of handing over more money. Today's news that the government has seized the cash of the nation's local governments, citing "extremely urgent and unforeseen needs," suggests the money really is running out. And none of the likely scenarios for what happens next seems compatible with Greece staying in the euro.
The hard-to-admit truth is that Greece seems both unwilling and unable to pay the dues that accompany euro membership. By ceding control of its currency, the country has ruled out devaluation as an option to pull its economy out of its tailspin; some clever people are starting to say Greece might be better off on its own.
It's worth recalling how Greece got behind the velvet rope of the euro club in the first place -- by cheating. The country couldn't clear the 3 percent deficit-to-gross-domestic-product ratio to qualify for membership; so it hired Goldman Sachs to do some fancy financial engineering in the derivatives market to manufacture the right number by 1999.
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Greece on the Brink
New York Times
April 20, 2015
“Don’t you think they want us to fail?” That’s the question I kept hearing during a brief but intense visit to Athens. My answer was that there is no “they” — that Greece does not, in fact, face a solid bloc of implacable creditors who would rather see default and exit from the euro than let a leftist government succeed, that there’s more good will on the other side of the table than many Greeks suppose.
But you can understand why Greeks see things that way. And I came away from the visit fearing that Greece and Europe may suffer a terrible accident, an unnecessary rupture that will cast long shadows over the future.
The story so far: At the end of 2009 Greece faced a crisis driven by two factors: High debt, and inflated costs and prices that left the country uncompetitive.
Europe responded with loans that kept the cash flowing, but only on condition that Greece pursue extremely painful policies. These included spending cuts and tax hikes that, if imposed on the United States, would amount to $3 trillion a year. There were also wage cuts on a scale that’s hard to fathom, with average wages down 25 percent from their peak.
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Trial Starts for Members of Neo-Fascist Golden Dawn Party in Greece
by Niki Kitsantonis
New York Times
April 20, 2015
In Greece’s most high-profile political trial in decades, members of the neo-fascist party Golden Dawn appeared in a Greek court on Monday on charges including membership in a criminal organization and murder.
The trial will determine the fate of Golden Dawn, the third-largest party in Greece’s Parliament. The overtly racist group was catapulted from obscurity into the front lines of Greek politics at the peak of the country’s debt crisis in 2012, railing against austerity and a growing influx of immigrants.
Facing trial are the party’s leader, Nikos Michaloliakos, a 57-year-old dishonored former Greek Army commando, and 68 other people, including the party’s remaining 16 lawmakers as well as supporters and police officers. Most are charged with membership in a criminal organization, with others accused of murder, racist violence and weapons possession. They face long prison terms if convicted. Golden Dawn rejects the charges, saying they are politically motivated.
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New York Times
April 20, 2015
In Greece’s most high-profile political trial in decades, members of the neo-fascist party Golden Dawn appeared in a Greek court on Monday on charges including membership in a criminal organization and murder.
The trial will determine the fate of Golden Dawn, the third-largest party in Greece’s Parliament. The overtly racist group was catapulted from obscurity into the front lines of Greek politics at the peak of the country’s debt crisis in 2012, railing against austerity and a growing influx of immigrants.
Facing trial are the party’s leader, Nikos Michaloliakos, a 57-year-old dishonored former Greek Army commando, and 68 other people, including the party’s remaining 16 lawmakers as well as supporters and police officers. Most are charged with membership in a criminal organization, with others accused of murder, racist violence and weapons possession. They face long prison terms if convicted. Golden Dawn rejects the charges, saying they are politically motivated.
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11 Acts Toward a Greek Tragedy
Bloomberg
April 20, 2015
With negotiations faltering, the rhetoric intensifying and a daunting payment schedule ahead, there is mounting concern that the latest disagreements over Greece may be more than just another stage in the prolonged repeated game involving that country's debt drama.
The worry is that, this time, a ghastly set of circumstances is coming together to form an inevitable reality – that of Greece being ejected from the euro zone (a forced “Grexit”), which wouldn't be caused by a conscious decision, but would be the result of a huge accident (“Graccident").
Here are the 11 things you need to know:
- What is making this scenario seem more plausible is the simple fact that Greece is rapidly running out of money, a situation so dire that the unthinkable is on the table: a default on obligations to the International Monetary Fund, one of the world’s few preferred creditors.
- With such an outcome becoming more than just thinkable, the walk away from Greek financial assets has turned into a jog that could be on the verge of turning into a run. Even some of the structural holders of Greek debt, such as foreign subsidiaries of Greek banks, have been exiting their holdings. Meanwhile, withdrawals of bank deposits are probably accelerating, this after large amounts have already fled the Greek banking system.
Charting Greece's Frightening Future
Bloomberg
April 20, 2015
Greece and its creditors would do well to step back and survey the wreckage as they enter yet another week of brinkmanship: Data on capital flows suggest they've undone years of confidence-building in a matter of months.
Haggling over the terms of loans from Germany and other official creditors is bringing Greece ever closer to a worst-case outcome: a default on its debts and possibly its exit from the European Monetary Union. The protracted uncertainty itself is taking a toll. Worried depositors and investors are moving their euros out of Greece to safer places such as Germany, depriving the Greek economy of the private investment it desperately needs to grow.
Data from the Greek central bank, which records each euro that leaves the country as a liability, suggest the capital flight has reached unprecedented proportions. Over the six months through March, about 62 billion euros ($67 billion) were taken out of Greece. That's the equivalent of a quarter of the country's gross domestic product. Here's a chart:
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Greece Flashes Warning Signals About Its Debt
New York Times
April 19, 2015
By the standards of his frenzied schedule here last week, the meeting on Friday between Yanis Varoufakis, the Greek finance minister, and Lee C. Buchheit, the dean of international debt lawyers, was a quiet one.
There was none of the media scrum that had followed Mr. Varoufakis around town during the semiannual meetings of the International Monetary Fund and World Bank, as he paid calls on the I.M.F. chief, Christine Lagarde; the head of the European Central Bank, Mario Draghi; the United States Treasury secretary, Jacob J. Lew, and even President Obama.
But the get-together with Mr. Buchheit carried critical meaning, according to experts here. After all, it was Mr. Buchheit who helped broker Greece’s most recent debt refinancing, in 2012.
As Greece now gropes for a resolution to its current financial problems, the meeting suggests Athens might still be holding out hope for a restructuring of its debt burden of 303 billion euros, or $327 billion.
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Sunday, April 19, 2015
Europe Braces for Messy Greek Endgame
Wall Street Journal
April 19, 2015
It’s still possible that Greece can remain in the eurozone—though that is no longer the base case for many policy makers. At the very least, most fear the situation is going to get much, worse before it gets any better. No one now expects a deal to unlock Greek bailout funding at this week’s meeting of eurozone finance ministers in Riga—originally set as the final deadline for a deal. The new final, final deadline is now said to be a summit on May 11.
But among European politicians and officials gathered in Washington DC last week for the International Monetary Fund’s Spring Meetings, there was little optimism that a deal will be agreed by then.
The two sides are no closer to an agreement than when the Greek government took office almost three months ago. “Nothing, literally nothing has been achieved,” says an official. In fact, it is worse than that: so far, the bulk of Athens’s reform plans would actually cost money or reduce government revenues, according to eurozone officials.
They say that when you add up all the government’s proposals, the budget surplus required under the current program turns into a 10-15% deficit while debt soars far above the 120% of GDP targeted for 2022. There is no way that the eurozone—let alone the IMF—could disburse funds on the basis of such fantastical numbers.
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IMF chief encourages Greece to bring reforms to ‘fruition’
April 19, 2015
Greece’s populist government must set aside politics and bring promised reforms to “fruition” to save its economy and avoid default, the head of the International Monetary Fund has warned ahead of a crucial few weeks of negotiations.
In an interview with the Financial Times, Christine Lagarde said she told Yanis Varoufakis, the Greek finance minister, during a meeting of the IMF/World Bank spring meetings in Washington last week that he needed to accelerate reforms. She warned that patience was running out with the new Syriza government in Athens and that any honeymoon it may have had with its creditors was rapidly coming to a close.
“There has been a huge commitment by the international community, the European partners but also the IMF and the European Central Bank to actually support the Greek economy,” she said.
“What needs to happen now is that the political views need to actually deliver the measures, the tools, the reforms that could actually reach the objectives that have been set between the international community and Greece: restore stability, improve the economy [and] make sure that one of these days Greece re-accesses the financial markets on its own and without support.”
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