Germany Gives Greece Grexit Referendum Greenlight Headline risk surrounding Greece will likely weigh heavily on investors’ minds throughout the week as Syriza faces one of its biggest tests yet when a €750 million payment to the IMF comes due on Tuesday. Despite rampant skepticism and a warning from Germany’s Schaeuble that countries can “accidentally” become insolvent, FinMin Varoufakis claims Greece will make the payment and thus avert an imminent default. This comes as finance ministers from across the currency bloc meet to discuss Greece’s future with the consensus being that there almost certainly will be no definitive deal on Monday, but there look to be conflicting reports as to whether an interim solution to address the country’s immediate liquidity needs can be fashioned. Via Reuters: A 750 million euro debt repayment to the IMF falls due on Tuesday but Varoufakis said a deal that would provide some liquidity relief for Greece was more likely in the coming days… Euro zone officials have ruled out a deal with Greece at Monday's meeting and said any statement they make is unlikely to be enough to allow the European Central Bank to raise the limit on short-term Treasury bills that Greek banks can buy - a move Athens has sought as a way to avert a national bankruptcy. In a sign of growing pressures within the ruling Syriza party against backing down to lenders, the parliament speaker Nikos Filis suggested on Monday that the IMF debt repayment would depend on the Eurogroup outcome… The stance of Filis, a hardliner within Syriza, is different from that of the government, which says it will make the payment on Tuesday. "It is clear that any move by one side affects the other side. The next moves will be shaped by today's developments, we are seeking an agreement," Filis told Mega TV. "The decision (on the IMF repayment) will be taken today. It depends on the Eurogroup," he said. Regardless of whether some stopgap measure is found for tomorrow’s IMF payment, Athens faces five more payments to the IMF over the course of the next two months, and given the seemingly intractable character of the negotiations, it’s worth considering what happens in the event of an “accident”. Barclays has taken a look at the country’s liability stack to determine where there is potential for cross-acceleration of payment rights. In other words: assuming Greece defaults on an obligation to a given creditor, what are the implications for other creditors in terms of their right to demand immediate payment? Below is a matrix which outlines the universe of possibilities. For their part, UBS is out with “four scenarios for Greece and the Eurozone.” Here’s more: Scenario 1: Eventually positive outcome, default and Grexit avoided Under this scenario, the negotiations between Greece and the Troika remain protracted, but they will eventually make sufficient progress for the Troika to sign off the conclusion of the stalled fifth review. This would lead to the payout of €7.2bn, but parts of the disbursement (for example the ECB's €1.9bn in SMP profits on Greek bonds) might be paid out earlier (for example, after reformrelated legislation had been passed by the Greek parliament) in order to help the Greek government to avoid a default in May/June… The key to a breakthrough would be that the Greek government, amid increasingly precarious public finances and ongoing deposit outflows from the banking sector, would eventually be forced to make more comprehensive concessions in crucial areas of structural reform, such as pension and labour market reform, taxation, and privatisation – measures that would go against vested interests in Greece. In return, to soften the political resistance to these measures and allow for somewhat greater social spending, the Troika would allow the Syriza government to run a lower than previously targeted primary surplus… Scenario 2: Default, but no Grexit Under this scenario, negotiations would continue to proceed very slowly, with the Syriza government remaining reluctant to give in to Troika demands related to unpopular structural reforms and fiscal targets. Amid an increasingly difficult budget situation, the government's ability to service its debt while at the same time paying wages and pensions would decline further and the government would eventually default on (parts of) its debt.4 In the event of a default, the risk of Grexit would clearly rise, but it would not be inevitable. In our view, it would depend crucially on: what sort of debt the government would default on; whether this would trigger cross-default on other debt; how the default would affect the stability of the Greek banking system; how the ECB would react to a default; and how long the default would last And as we argued yesterday, the ECB’s handling of an adverse scenario will prove crucial: A crucial question would then be how the ECB would react. As we argued above, the ECB's rules on the provision of Emergency Liquidity Assistance (ELA) are neither detailed nor very transparent; and although they clearly stipulate that ELA can only be provided to solvent financial institutions, the ECB would probably have some room to exercise judgement and discretion. We would regard it as likely that the ECB would at least tighten the collateral requirement (haircut) it applies on ELA. However, the ECB might not necessarily cut off ELA immediately, particularly if negotiations between the Greek government and the Troika were still ongoing and a positive eventual outcome were still conceivable. (In the case of Cyprus in late 2012/early 2013 the ECB continued to provide ELA despite widespread concerns about the solvency of the Cypriot banking system.) Scenario 3: Default, quick Grexit Should Greece fail to strike a deal with its international creditors over the coming months, the fiscal situation would deteriorate so far that a default might become inevitable; this could happen as early as May or June, but the risk would certainly rise dramatically in July and August. Default would seriously worsen the situation of the Greek banks, given losses on their bond/T-bill exposure, a reduction in eligible collateral for ELA operations, and likely deposit runs. If an official, political understanding is reached at the European level that talks have finally collapsed – a crucial difference towards Scenario 2 – the ECB would not be able to "pretend and extend", but would have to cut off ELA to Greek banks. The Greek government would be forced to impose capital controls, but the liquidity situation of the banking sector would nevertheless worsen so dramatically that, in order to avoid a collapse of the banking system, the government would have no choice but to introduce its own currency. The launch of a "New Drachma" would be a huge logistical challenge. Scenario 4: IOUs to become a parallel currency, eventual default, Grexit Under this scenario, the increasingly desperate budget situation would force the Greek government to issue IOUs for domestic payments. By now the government might have already started to pay corporate suppliers using IOUs of some sort (as happened in Greece and other peripheral countries earlier in the Eurozone crisis), but the approach could be formalised much more and extended to public sector salaries and pensions, which make up a large part of public spending. Here’s a probability distribution… ...and here’s a look at what GGBs are saying about the risk of Grexit
cont'd As you can see from the above, the notion of a "parallel currency" (which is a polite name for an IOU issued by the Greek government) is increasingly seen as a very real possibility and could have dire consequences for the monetary union because as we've noted in the past, it is redenomination risk that threatens to break the euro, not spiking periphery spreads. Put more simply: If there is a Greek default and suddenly it becomes clear to everyone that the unbreakable monetary union is quite, well, breakable, the IMF will have to worry not about bank runs in Bulgaria et al, but the countries in Europe's periphery. Consider the following as well which underscores the degree to which a return to the drachma is under serious consideration (via Bloomberg): Ex-Deutsche Bank Chief Economist Thomas Mayer discussed his proposal for a parallel currency with Greek Finance Minister Yanis Varoufakis and Prime Minister Alexis Tsipras at April 28 meeting in Athens, Handelsblatt reports, citing Mayer. Mayer’s proposal from 2012 gaining traction as ECB, IMF also considering scenarios whereby pensions, government workers could be paid in IOUs: Handelsblatt, citing unidentified German govt official. Meanwhile, Germany has suggested that Greece should consider letting its citizens decide if they are prepared to dial back their anti-austerity expectations in exchange for funding that would keep the country in the euro and avert a catastrophic default. Via WSJ: A referendum in Greece on the country’s international bailout program may be a good idea, Germany’s finance minister said Monday. “It may even be a right measure to ask the Greek people to decide whether it’s ready to accept what is necessary or whether it wants the alternative,”said Wolfgang Schäuble said as he arrived for a meeting with his eurozone counterparts in Brussels. Calling a referendum on the bailout would be a risky move for both the government in Athens and the rest of the eurozone, adding further unpredictability to a tense situation. A negative vote would likely herald Greece’s exit from the eurozone. Several of the overhaul measures demanded by Greece’s international creditors—including pension cuts and new laws that make it easier to lay off workers—clash with the promises the new left-wing government made when it was elected in January. The last time a Greek government proposed a referendum on its bailout—in 2011—the idea was vehemently opposed by German Chancellor Angela Merkel. Her opposition pushed the then-government to scrap the plan. Of course, as we've noted on several occasions, Greeks aren't keen on the referendum idea even as they prefer, on balance, to remain in the euro. Via Protothema: A day after Greek Radical Left Coalition (SYRIZA) Prime Minister Alexis Tsipras overhauled his negotiating team in an effort to speed up debt talks and unlock bailout funds benchmarked for Greece, the prime minister said he might resort to calling a public referendum on any deal with international creditors. He said that a package that goes beyond the political mandate that resulted in his party’s victory on January 25 could result in a referendum. Citizens polled by Marc for private ALPHA TV and by GPO for private MEGA TV state that Greeks do not want to go to the polls on the issue. GPO saw that a resounding “No” to a referendum is given by 62% of Greeks.
Too funny! "There is no money to give them since they haven't given us the money to repay them.." hahaha..... Greece To Tax Bank Transactions, Says IMF "Won't Get Any Money" On June 5 On Monday we got still more bad news for Greece. Around one-third of Angela Merkel’s Christian Democratic bloc opposes further aid for Athens meaning the Chancellor faces an uphill battle in convincing German lawmakers to keep Greece on life support. Meanwhile, a new report from the Hellenic Confederation of Commerce and Enterprises suggests that each day without a deal costs the Greek economy €22.3 million. Not to put too fine a point on it, but Tuesday’s headlines are even worse. First, up is parliamentary speaker Nikos Filis confirming what the IMF leaked on Saturday: without a deal, Greece will default on June 5. Via Reuters: Greece will not be able to make a payment to the International Monetary Fund that falls due on June 5 without a deal with its international lenders, the government's parliamentary speaker said on Wednesday. Athens faces several payments totaling about 1.5 billion euros (1 billion pounds) to the IMF next month and is in talks with the European Union and the International Monetary Fund to clinch a cash-for-reforms deal before it runs out of money. "Now is the moment that negotiations are coming to a head. Now is the moment of truth, on June 5," parliamentary speaker Nikos Filis, from the ruling Syriza party, told ANT1 television. While everyone should by now be desensitized to the sheer ridiculousness inherent in this circular funding scheme, as you can see from the following, the absurdity never ceases to amaze: "If there is no deal by then that will address the current funding problem, they won't get any money. There is no money for the foreign (lenders) when they have not given us any funds for a year,” Filis said. Basically, it’s not clear to Filis why these “foreign lenders” expect to get their money back when they haven’t sent Greece the money to repay them. Varoufakis is still confused about a few things himself, notably that his superior intellect never seems to trump Schaeuble’s de facto status as EU paymaster when the two discuss billion-euro bailouts for Greece. Via Bloomberg: German Finance Minister Wolfgang Schaeuble wrongly views previous Greek govts as “reflecting the character of all Greeks,” German weekly Die Zeit quotes Greek Finance Minister Yanis Varoufakis as saying in interview. Asked if Schaeuble making mistakes in his analysis of Greece, Varoufakis says yes: Zeit Varoufakis says regrettable that “relative power” trumps arguments when he and Schaeuble talk: Zeit While Greek officials leisurely ponder such things, the central bank is begging for another increase in the ELA ceiling... GREEK CENTRAL BANK SAID TO REQUEST EU1.1B INCREASE IN ELA ...while the banks themselves mull the imposition of a levy on all transactions above €500… Via Kathimerini: Athens is promoting the idea of a special levy on banking transactions at a rate of 0.1-0.2 percent, while the government’s proposal for a two-tier value-added tax – depending on whether the payment is in cash or by card – has met with strong opposition from the country’s creditors. A senior government official told Kathimerini that among the proposals discussed with the eurozone and the International Monetary Fund is the imposition of a levy on bank transactions, whose exact rate will depend on the exemptions that would apply. The aim is to collect 300-600 million euros on a yearly basis. Fee won’t include ATM withdrawals, transactions up to EU500; in this case Greek govt projects EU300m-EU600m annual revenue from measure. It looks like things are about to get a lot worse for Greeks as capital controls may be just around the corner. We wonder if the next shoe to drop will be a good old fashioned 'Cyprus'ing' for depositors.
Tsipras Accuses Troika of "Creditor Monstrosity", Urges Eurozone Leaders to Read "For Whom the Bell Tolls" It appears the eurozone is one step closer to an "accident" today. In a Le Monde editorial Defiant Tsipras Threatens to Detonate European Crisis Rather than Yield to Creditor "Monstrosity". Greek premier Alexis Tsipras has accused Europe's creditor powers of issuing "absurd demands" and come close to warning that his far-Left government will detonate a pan-European political and strategic crisis if pushed any further. Writing for Le Monde in a tone of furious defiance after the latest set of talks reached an impasse, Mr Tsipras said the eurozone's dominant players were by degrees bringing about the "complete abolition of democracy in Europe" and were ushering in a technocratic monstrosity with powers to subjugate states that refuse to accept the "doctrines of extreme neoliberalism". "For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim," he said. "If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”," he said. The situation has become critical after depositors withdrew €800m from Greek banks in two days at the end of last week, heightening fears that capital controls may be imminent. Mr Tsipras's choice of words also implies that Greece may turn its back on the Western security system, presumably by shifting into the orbit of Russia and China. The Left Platform has called for a full "counter-attack" against the EU powers, laying out its inflexible terms in a new document. It demands a default on the debt and the "immediate nationalization of the banks with all necessary accompanying measures". "What the ruling circles of the EU, the ECB and the IMF are ruthlessly and consistently aiming for in the last four months, is to strangle the economy, to milk the last euro from the country´s reserves and to push a vulnerable government into full submission and exemplary humiliation," it said. Greek Debt Pile What cannot be paid back, won't. And anyone with any bit of common sense knew four years ago.
I am afraid it is not going to happen. For the time being they will invoke the special bylaws of the IMF in that they will bundle all due debt payments this month and attempt to pay at the end of the month, but I believe it is more a political choice, in order to keep the pressure on the 3 negotiation partners rather than a disability to make the payment today. What I really wish would be to have the negotiations with names made public in order to figure out which politicians and lawmakers are the ones taking a tough stance and which are supporting the can to be further kicked down the road. It would be good for the public to know so we can strangle and hang those later. I believe European private institutions are sufficiently capitalized by now in order to withstand a Greek default.
Isn't it time the feckless, corrupt Greeks had a fire sale and auctioned off some islands ? Isn't it obvious they are completely inept and unable to manage their own affairs ? So let others do the job. The same should apply to that other country that owes $17 trillion ! Problem solved.
Something amaze me is majority of the Greek population still want to stay in Euro, but at the same time they refuse to play their role in Euro ( doing reforms, pay back their debt and etc).
that amazes you? Seriously? It amazes you that there are people who want all the benefits but do not want to pay the cost? I mean it amazes me that Greeks are totally blunt in pointing out that they cannot repay any of the debt if nobody gives them new money to spend but it does not amaze me that such irresponsible people exit. In the same way as some people blame banks and Greenspan instead of sub prime borrowers for the mortgage crisis you see people swirling around this forum blaming Europe, Germany, world peace and all sorts of other factors instead of the irresponsible behavior of Greek people for the mess in Greece. That sort of stuff amazes me, not the greed inherent in human beings.