Category Archives: Greek crisis

17/9/15: Greek Crisis: Structural & Institutional Drivers

A lot has been written about Greek economy, with basically two divergent views (ignoring comical extreme perspectives usually harboured by the media) of the core problem:

  • The first perspective is that Greek economy has been driven by wrong-footed European policies (austerity, failed restructuring of Private Sector-held debt), as well as by deceptive practices of some private sector players (that somehow facilitated Greek Governments' false declarations of deficits, questionable restructuring of pre-Euro era debts etc).
  • The second perspective is that Greece suffers from chronic, long term institutional failures that have left economy deeply non-competitive.
In my view, both narratives coexist in reality, even though the first one became the dominant preferred narrative of the 'Left' while the second one became the dominant one on the 'Right' of political spectrum within Greece and outside.

Ideology aside, here is an interesting and wide-ranging view from the second perspective, courtesy of Edmund S. Phelps. Worth a read... 

As a note to this, one part of the first perspective that is glaringly false is the perception of Greece as being a victim state of the 'international bankers'' manipulation of the national debt accounting (the so-called Goldman Sachs Swap deal). Greek Government, at the time, wilfully and freely contracted Goldman Sachs to execute the deal. Informational disclosures available to the Greek Government at the time were sufficient for the Government to know exactly what it was doing and why. Eurostat was notified of the deal and did not object. There appears to have been no deception nor any coercion involved, except for the deception by the Greek Government at the time, knowing neglect of the issue by the Eurostat and soft coercion of the EU in dealing with Greek Accession to the Euro.  

Far from being a victim, Greek authorities have actively, willingly and knowingly participated, over decades, in shaping numerous institutional failures that strongly contributed to the economic destruction of the country. These authorities acted on the basis of electoral mandates. Their failures are briefly listed in Endmund S. Phelps' article linked above.

This does not, of course, diminish the pain from the crisis and does not eliminate the need for cooperative assistance and support to be extended to Greece, including direct debt relief. But it does call for a better balancing of analysis of the Greek economic situation overall. And it does call for the Greek people to engage in some serious soul-searching as to the nature and quality of the political leadership they elect. Especially, given the fact that they are about to go to the polls on September 20th.

3/8/15: Greek Manufacturing PMI: In the Land of Imaginary Numbers

Markit Manufacturing PMI for Greece is outright disastrous.

Euro area Manufacturing PMI for July came out with a slight decrease on June 2015 reading, still beating (marginally) flash estimate:

Looking at countries ranked by PMI reading, Italy showed a surprise rise, while Austria posted a surprise fall:

But the real story is Greece:

One wonders, just how much more the Greek economy is going to contract before the Bailout 3.0 is finalised and just what new wondrously well-working structural reforms will be needed to get it out of the new hole?

14/7/15: Arrears on IMF & No Samurai Bonds Trigger: Greek Bridge Financing Update

Yesterday, I covered the possible routes to structuring bridge financing for Greece (see this post with today's earlier update). Via WSJ, here is the list of debts coming due over July-August, inclusive of two payments to IMF that are now in arrears (see IMF statement below):


And the IMF statement from last night:

A point to note: Greece redeemed the Samurai bonds (Yen 20bn) yesterday. Which, effectively, means it avoided private sector bonds default trigger.

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.