Category Archives: Greek bonds

5/5/15: IMF, Greece & Europe: More Bickering, Less Tinkering?

An interesting article on Greece in FT: suggesting that the IMF is now actively drifting into fall-out management mode for Greek crisis.

According to the FT: "Greece is so far off course on its $172bn bailout programme that it faces losing vital International Monetary Fund support unless European lenders write off significant amounts of its sovereign debt, the fund has warned Athens’ eurozone creditors." And this means that Greece is at a risk of failing to secure release of EUR3.6 billion worth of bailout funds - the IMF share of the EUR7.2 billion of Troika funds - that still remain to be disbursed to Athens.

Absent these funds, Greece is insolvent, full stop.

Basically, per IMF projections, debt sustainability in Greece requires 3% primary net lending / borrowing balance in 2015 (up on estimated surplus of 1.5% in 2014) and this is required to rise to 4.5% in 2016-2017 and 4.24% in 2018-2020. In Euro terms, 2015 primary surplus required is EUR5.49 billion. Instead, the IMF now estimates that the country will be running a primary budget deficit (not surplus) of 1.5%.

Primary balance is Government balance excluding interest on debt.

If true, the deterioration in Greek finances so far this year is massive. And there is no way of correcting for it, unless either Greece imposes much more severe austerity or there is a formal and significant debt restructuring for debts held by the 'official sector' - aka Troika.

Per FT report, sources close to the Eurogroup claimed that “The IMF thinks the gap between the two realities is very large right now,” said one senior official involved in the talks. A stand-off between the IMF and eurozone creditors over Greece is not unprecedented. Three years ago, the IMF refused to disburse its portion of the aid tranche because of similar fears Greek debt was not falling fast enough. The IMF only signed off after eurozone ministers agreed to consider, but never implemented, writing down their bailout loans to reduce Greece’s debt to “substantially lower” than 110 per cent of GDP by 2022. It currently stands at 176 per cent." So in other words, the IMF appears to be pushing for a debt restructuring for Greece.

In a separate report: Germany Finance Minister Wolfgang Schaeuble denied the IMF is pressuring the Eurogroup to restructure Greek debts.

As I noted in January (, this is by far the most often repeated disagreement between Greece, Europe and the IMF. And it comes as the Eurogroup attempts to structure another bailout package for Greece. So far, rumours have it, the Eurogroup outlook for Bailout 3.0 needs are pitched at EUR30-50 billion. But, as FT notes, "rising deficits could change that calculation."

Meanwhile, Greece continues to stumble from one payout to next - on a weekly basis -

And now we have a smell of napalm in the morning - some signs of bond markets repricing peripheral risks for the euro area:

21/4/15: Greece Heading for the Bust?

With capital controls starting to creep in and with a big peak in debt redemptions looming,  as per chart below, Greece is now entering the last stage of pre-default financial acrobatics.


The country bonds yields are now re-tracing previous peaks (more on this here):

Source: @Schuldensuehner 

And as cash transfers from the local governments to the Central Bank (see link above), plus continued depositors flight are blowing an ever widening hole in Greek balance sheets, the ECB is seriously considering to cut substantially Greek banks access to liquidity.  The cut will have to be along the ELA lines (ELA governing rules are available here). Meanwhile, Greek banks' shares are tanking, down some 50% in month and a half.

Here is the end-of-day chart for Greek banks shares index, showing historical low set today
Source: @Schuldensuehner 

and the opening levels for the same:
Source: @ReutersJamie 

All of which has, as a backdrop, pretty ominous (though entirely correct) ECB talk about the options for Greek default.

This is going to be an eventful day or two, folks.

Update 2: Meanwhile in the mondo bizzaro, the ECB is reportedly looking into dual currency regime for Greece. Which sort of makes sense as a transition out of euro area membership, but makes little sense as a tool for retaining Greece in the Euro. Which, in turn, may or may not be an indicator of ECB going the Ifo way. Go figure...

Update 1: A handy chart summing up ECB's 'headache'

Source: @Schuldensuehner 

And as @Schuldensuehner notes: "Grexit costs rise by the minute" as country Target2 liabilities have reached EUR110.4 billion, "mainly driven by ELA for banks".

Source: @Schuldensuehner 

Greek debt exposures by countries: and across the official sector: