Category Archives: grexit

21/4/16: Drama & Comedy Back: Grexit, Greesis, Whatever

Back in July last year, I wrote in the Irish Independent about the hen 'latest' Greek debt crisis: Optimistically, I predicted that a full-blown crisis will return to Greece in 2018-2020, based on simple mathematics of debt maturities. I was wrong. We are not yet into a full year of the Greek Bailout 3.0 and things are heading for yet another showdown between the Three-headed Hydra the inept Greek authorities, the delusional Germany, and the Lost in the Woods T-Rex of the IMF.

Predictably, IMF is still sticking to its Summer 2015 arithmetic: Greek debt is simply not adding up to anything close to being sustainable: an example of the rhetoric here. Meanwhile, the FT is piping in with a rather good analysis of the political dancing going on around Greece: here. The latter provides a summary of new dimensions to the crisis:

  1. Brexit
  2. Refugees crisis
But there is a kicker. Greece is now in a primary surplus: latest Eurostat figures put Greek primary balance at +0.7% GDP for 2015, well above -0.25% target. And Greek Government debt actually declined from EUR320.51 billion in 2013 to EUR319.72 billion in 2014 and EUR311.45 billion in 2015. This can and will be interpreted in Berlin as a sign of 'improved' fiscal performance, attributable to the Bailout 3.0 'reforms' and 'assistance'. The argument here will be that Greece is on the mend and there is no need for any debt relief as the result.

Still, official Government deficit shot from 3.6% of GDP in 2014 to 7.2% in 2015. Annual rate of inflation over the last 6 months has averaged just under -0.1 percent, signalling continued deterioration in economic conditions. Severe deprivation rate for Greek population rose to the crisis period high in 2015 of 22.2 percent, up on 21.5 percent in 2014. Industrial production on a monthly basis posted negative rates of growth in January and February 2016, with February rate of contraction at -4.4% signalling a disaster state, corresponding to 3% drop on the same period 2015. Volume of retail sales fell 2.2% y/y in January marking fourth annual rate of contraction in the last 5 months. Unemployment was 24% in December 2015 (the latest month for which data is available), which is down from 25.9% for December 2014, but the decline is more likely than not attributable to simple attrition of the unemployed from the register, rather than any substantial improvement in employment.

In simple terms, Greece remains a disaster zone, with few signs of any serious recovery around. And with that, the IMF will have to continue insisting on tangible debt relief from non-IMF funders of the Bailout 3.0.

It is a mess. Which probably explains why normally rather good Washington Post had to resort to a bizarre, incoherent, Trumpaesque coverage of the subject. This,, in the nutshell, sums up American's disinterested engagement with Europe. 

Enjoy. Grexit is back for a new season to the screens near you. And so is Greesis - that unique blend of fire and ice that has occupied our newsflows for 6 years now with high drama and some comedy.

14/7/2015: And the Greek Debt Merry-Go-Round Spins & Spins…

In the latest world of EUlunacy, we have some interesting 'developments' on the Greek crisis front.

First up, this: per Irish Finance Minister Noonan, 'Greesolution' agreed Monday am will have 'no budgetary implications' for Ireland, although Ireland 'will be taking on new liabilities'.

Translated into Human language this means: no official increase in Government deficit, but new debt will be issued by Ireland to fund Greek bailout.

Using ESM key, our share of EUR86 billion bailout will be ca EUR1.41 billion. It might be slightly less or slightly more, depending on a range of factors.

But the point is simple: pre-Monday agreement, Ireland had two choices:

Choice 1: support Greek debt write downs. Which would have cost us the same EUR1.41 billion at most, but would have achieved a reduction in Greek debt. Alternatively, if it was structured via monetary financing (ECB-monetised write down) it could have cost us (and rest of EU) virtually nothing (the cost would have been carried out via ECB simply writing down its own assets and liabilities - a balance sheet exercise).

Choice 2: current agreement-envisioned new loans for Greece - which will require all euro area states chipping in to fund the bailout and thus will require Ireland borrowing funds in the markets, increasing our debt, and giving them as loans (more debt) to the already over-indebted Greece.

Minister Noonan et al opted for Choice 2 but claim there will be no cost to Ireland from doing so (presumably because assuming more debt is costless to the Minister). You judge…

Meanwhile, the FT published this handy graphic explaining where the money borrowed by Ireland et al and given as debt to Greece will be used:

Source: FT

  • EUR29.7 billion of cash to be loaned to Greece will go to pay down the money borrowed by Greece under the privies EU lending schemes so that a merry-go-round of European policymaking can spin and spin. 
  • EUR25 billion will go to the banks to cover damages done by previous merry-go-round schemes. 
  • EUR17.2 billion will pay interest on past and current merry-go-round schemes. 
  • EUR7.7 billion will go to the banks to cover potential runs by depositors scared of the merry-go-round schemes. 

In total, all but miserly EUR7 billion of new loans to Greece will go one way or the other to sustain unsustainable old loans.

My brain aches from European leaders' insistence on staying oblivious to the reality, my heart ache for European people forced to sustain this oblivion.

13/7/15: A Promise of a Deal = An Actual Surrender

So we finally have a 'historic' agreement on Greece. You know the details:

  1. Tsipras surrendered on everything, except one thing.
  2. One thing Tsipras 'won' is that the assets fund (to hold Greek Government assets in an escrow for Institutions to claim in case of default) will be based in Greece (as opposed to Luxembourg), managed still by Troika (it remains to be seen under which law).
  3. IMF is in and is expected to have a new agreement with Greece past March 2016 when the current one runs out. So not a lollipop for Tsipras to bring home.
  4. All conditionalities are front-loaded to precede the bailout funding and Wednesday deadline for passing these into law is confirmed. 
Bloomberg summed it up perfectly in this headline: EU Demands Complete Capitulation From Tsipras.

Remember,  Tsipras went into the last round of negotiations with the following demands:
Source: @Tom_Nuttall

And that was after he surrendered on Vat, Islands, pensions, corporation tax - all red line items for him during the referendum.

Reality of the outcome turned out to be actually worse. 

The new 'deal' involves a large quantum of debt (EUR86 billion, well in excess of Greek Government request from the ESM) and the banks bailout funding requirement has just been hiked from EUR10-25 billion to 'up to EUR50 billion', presumably to allow for some reductions in ELA. 

The new 'deal' only promises to examine debt sustainability issue. There are no writedowns, although Angela Merkel did mention that the plan does not rule out possible maturities extensions and repayment grace period extensions. This, simply, is unlikely to be enough.

The 'deal' still requires approval of the national parliaments. Which can be tricky. Here is the table of ESM capital subscriptions by funding nation:

Tsipras also lost on all fronts when it comes to privatisations. In fact, even if the future Government lags on these, the EU can now effectively cease control over the assets in the fund and sell these / monetise to the fund itself. Not sure as per modalities of this, but...

Detailed privatisation targets are to be re-set. Let's hope they will be somewhat more realistic (home hardly justified in the context of the new 'deal'):

To achieve this, EU had to literally blackmail Tsipras by rumour and demands:

Source: @TheStalwart

Source: @Frances_Coppola

And so the road to the can kicking (not even resolution) is still arduous:
 Source: @katie_martin_fxs

My view: the crisis has not gone away for three reasons:
  1. Short-term, we are likely to see new elections in Greece prior to the end of 2015;
  2. We are also likely to see more disagreements between the euro states and Greece on modalities of the programme; and
  3. Crucially, over the medium term, the new 'deal' is simply not addressing the key problem - debt sustainability. 
For the fifth year in a row, EU opts for kicking the same can down the same road. 

12/7/15: Instead of Abating, Greek Crisis Just Accelerated

Per latest reports, Eurogroup estimates Greek funding needs at EUR82-86 billion - a far cry from EUR53.5 billion requested from ESM. EUR10-25 billion needed for banking sector (because bailing out European states must always involve bailing out banks).

In order to continue funding discussions, Greece is required to pass the following 12 measures before Wednesday:
Source: @eurocrat 

The list is at best - silly:

  • Measures 1-3, and 6 are effectively MOU for a bailout, but without an actual bailout commitments;
  • Measures 4,  7-9, and 11 require significant time to properly draft, let alone implement;
  • Measure 12 is senile - no one has ejected Institutions from Athens (they don't require a visa to travel there);
  • Measures 5 and 10 are pro-forma.
Can anyone seriously expect any Government addressing the issues of banks recapitalisation and recovery, plus the issue of non-performing loans within a span of 3 days?

Besides all of this, the key point is that the 12 measures outlined effectively fully and comprehensively pushes Greece into worse adjustments package than anything put forward prior to the Greek referendum. And all this achieves is... brings Greece back comes Wednesday to face more negotiations over additional measures. 

Below are the four pages of key document from the Eurogroup

Source: @giopank

Alternative link to same:

Items that were not agreed upon are in the brackets. These include: nominal debt haircuts.

There is also a proposed escrow 'company' to hold EUR50 billion of Greek assets as collateral (titles to state properties) in Luxembourg (which is neither enforceable, nor serious). 

In simple terms, Greek choice is now stark and simple: accept complete control over the economy and assets from Brussels/Frankfurt or 'temporary' Grexit for 5 years with possible haircuts to debt. Germany et al just accelerated the crisis... next move: Greece.