On Tuesday, Greece postponed a scheduled Eurogroup meeting in Brussels without offering a reason as officials conducted “preparatory” discussions and held an evening teleconference with creditors. Face-to-face meetings will take place today with just 9 days to go until June 5 when Athens will miss a payment to the IMF, triggering an unprecedented default the repercussions of which no one can accurately predict.
Also on Tuesday, Greek FinMin Yanis Varoufakis allegedly told Greek reporters that one measure under consideration to help stem the outflow of deposits from Greek banks was a levy on ATM withdrawals designed to encourage the use of credit cards over cash, a rather ironic suggestion coming from a government crippled by debt. The Finance Ministry was quick to deny that such a levy was being considered because after all, one way to ensure that ATM lines will get quite a bit longer is to suggest that depositors will soon be subject to a levy on withdrawals. Unfortunately, it appears as though the move to dispel the ATM tax “rumor” came too late because according to Kathimerini, deposit flight accelerated meaningfully on Tuesday. Here’s more:
Statements suggesting the imposition of capital control measures over the upcoming long weekend, and Tuesday’s reference by the Finance Ministry to the possible imposition of a levy on cash machine withdrawals – later withdrawn – sent many to the ATM. At the same time, bank officials point to widespread concerns about the possibility of a rift between Greece and its creditors over the government’s failure to repay a scheduled installment to the International Monetary Fund next week.
Credit sector professionals reported that deposit outflows on Tuesday alone came to 300 million euros, against about 100 million euros per day in recent days. They said that while this amount is quite high, the situation is under control as citizens are remaining calm on the positive messages from Greek officials.
On Wednesday the ECB board is expected to decide on a fresh extension of the ELA mechanism following the addition of another 200 million euros last week to a total of 80.2 billion euros. Although pressure by certain ECB council members for a tougher stance toward Greece has grown, sources agree that the ECB will probably avoid making any decisions that could trigger any major developments.
Up until this moment, Greece may not have had the financial wherewithal to pay its creditors, forced instead to use circular math gimmicks in which the IMF paid the IMF for the country’s most recent €750 million due on May 12 when it effectively pre-defaulted and used SDR reserves as “payment”, but at least it had a united facade when facing Europe and political cohesion when dealing with the Troika.
That too may have just evaporated over the weekend, when in a surprisingly close vote showing just how deeply the ruling Greek Syriza party has splintered, the hard line “Left Platform” a faction within Syriza, proposed that Greece stop paying its creditors if they continue with “blackmailing tactics” and instead seek “an alternative plan” for the debt-racked country. Its motion called for the government to default on the IMF loans rather than compromise to creditor demands, among which a change to value-added tax rates, further liberalization of the labor market and changes to the pension system, including further cuts to pensions and wages.
According to the NYT, which first reported the vote outcome, the proposal was narrowly rejected with 95 people voting against and 75 in favor.
It is all up to Alexis Tsipras now. The Greek prime minister will decide soon whether or not he wants a deal with his creditors that would allow Athens to service its debt. If he says “no”, Greece will default. At that point, it is possible the country will have to leave the eurozone.
What should he do? He will know his own political constraints. I will focus on the economics. The short answer is: if the deal is reasonable, he should accept. So where is the line between reasonable and unreasonable?
The rough answer is whatever it takes to end the uncertainty. No investor is going to put their money into Greece so long as there is a threat of Grexit — a Greek exit from the eurozone. For an agreement to be viable, it would need to reduce the probability of Grexit to zero. The same applies to the policies needed if Mr Tsipras says “no”. On that day he would need a brilliant economic plan.
So what economic criteria should he apply to evaluate any offer?
The single most important part of the agreement concerns the fiscal adjustment that Greece’s creditors are asking Athens to undertake. The variable to look out for is the primary surplus — the fiscal balance before payment of interest on debt: essentially the money a country has for debt servicing. There is no such thing as an objectively right or wrong number. But experience shows that large primary surpluses are politically unsustainable. It was the unsustainability of the previous agreement between Greece, its European creditors and the International Monetary Fund that brought Syriza to power.
Whenever secret or confidential information or documents are leaked to the press, the first question should always be who leaked it and why. That’s often more important than the contents of what has been leaked. And since there’s been a lot of hullabaloo about a leaked document the past two days, here’s a closer look. Spoiler alert: the document(s) don’t reveal much of anything new, despite the hullabaloo.
On Saturday, Paul Mason at Channel 4 in Britain posted an IMF document(s) that according to him says, among other things, that the IMF expects a June 5 Grexit – in one form or another – if there is no agreement before that date between Athens and its creditors, ‘the institutions’ (of which the IMF itself is one).
The leaking is simply what it is as long as we don’t know the how and why. But the question will remain why somebody takes the risk to leak something only a small and select group of people are privy to. Is it leaked because it’s politically important, does Paul Mason pay a lot of money for leaks? Or is it perhaps an intentional leak, in this case ordered by IMF higher-ups? And if so, for what reason? A veiled threat?
European ministers heaped pressure on Greece Friday to speed up negotiations to unblock critically needed bailout funds and avert a dangerous default, showing frustration after months of bogged down talks.
The eurozone’s 19 finance ministers ended a meeting in Riga without a breakthrough towards unlocking 7.2 billion euros ($7.8 billion) in bailout cash, with the threat of a messy exit by Greece from the euro still hanging in the balance.
“It was a very critical discussion,” said Eurogroup chairman Jeroen Dijsselbloem after the talks ended, with eurozone ministers angry at the lack of progress as a hefty payment of 200 million euros to the IMF stands due on May 1.
“There remain big, big problems to be solved for Greece,” he said.
Athens is fast running out of money to both pay its creditors and carry out everyday government, raising the risk of a default as a long series of huge loan repayments to the International Monetary Fund and the European Central Bank approach.>> Read More
How do you solve a problem like Syriza’s continued refusal to implement reforms? Greece’s creditors are still not sure, and bondholders are reacting by offloading the country’s debt.
A sharp sell-off of Greece’s short term bonds has entered its seventh day, with interest-rate yields on the country’s three-year notes having hit their latest all-time high of 26.968 per cent.
This comes after International Monetary Fund head Christine Lagarde urged Greece’s governing coalition, led by the populist Syriza party, to set aside its anti-austerity politics and bring reforms to fruition to save the economy and avoid a debt default.
Syriza leader Alexis Tsipras has shown a deep reluctance to restart an austerity programme he won power by promising to end, prompting Greece’s creditors to freeze extra bailout funds.
Without this funding, the cash-strapped country is likely to run out of money and default on payments due to either the IMF in May or June. In the summer, large amounts of Greek bonds held by the European Central Bank will mature. As yet, there is no clarity on how Athens will repay these.
European Central Bank (ECB) president Mario Draghi has warned the negotiations around Greece’s €240bn (£181bn) bailout program are “urgent” and a default by the cash-strapped country would push the region into “uncharted territory”.
“Much more work is needed now, and it’s urgent,” he said at the International Monetary Fund – World Bank spring meeting in Washington.
“We all want Greece to succeed. The answer is in the hands of the Greek government.” This echoes comments made earlier this week when he stressed that the ball remains in Greece’s court.
Prime Minister Alexis Tsipra’s government is trying to come up with a list of economic reforms acceptable to its creditors, in order to unlock a €7.2bn tranche of cash. But the clock is ticking – it’s due to pay €200m to the IMF on 1 May and then €770m on 12 May.
The Greek government has previously agreed to continue fiscal austerity, it does want to reduce the extent of it.
Draghi said, compared to the start of the sovereign debt crisis around five years ago, the euro area is better prepared for the financial turmoil that could ensue if the negotiations failed.
Commentators have warned that if Greece is unable to secure funding, it could lead to capital controls – which would stop panicked investors pulling money out of the country – as well as an exit from the common currency.
Nonetheless, he said it’s still facing “uncharted territory”.
The honeymoon is officially over in Greece for the Syriza socialist saviors who, after a series of dramatic pledges to free Greeks from the bonds of austerity have been forced to abandon the very promises which got them elected as the “institutions” (no one is allowed to speak of the “troika” any longer) have refused to budge on demands that Athens institute serious fiscal reforms.
Now, with time running dangerously short, and with looming payments to the IMF and to public sector employees and pensioners, the people are restless…
With almost 70% of Europeans already believing that Greece is a drag on the EU economy, this morning’s statement by Greek Alternate Finance Minister Dimitris Mardas – coming just a week after the war-raparations committee was set-up, telling lawmakers in Parliament that he has calculated that Germany owes Greece EUR 278.7 billion in World War II reparations, will surely deepen the rift (at almost 40% of Germany’s EUR 735 billion GDP) whether right or wrong.
As Bloomberg reports,
Greece’s total war reparations claim amounts to EUR 278.7b, Greek Alternate Finance Minister Dimitris Mardas tells lawmakers in Parliament.
The claim was calculated by Greece’s General Accounting Office, which has collected archival material.
This includes a EU10.3b repayment of loan country was forced to make to Germany during Nazi occupation…>> Read More
The ECB began a programme of buying sovereign bonds, or quantitative easing, on Monday with a view to supporting growth and lifting euro zone inflation from below zero up towards its target of just under 2 percent.
Bond yields in the currency bloc have collapsed, but record low interest rates so far have not spurred investments that would support growth in recession-hit countries like Italy or Spain.
“QE is all around us and optimism is in the air,” Varoufakis told a business audience in Italy. “At the risk to sound the party pooper … I find it hard to understand how the broadening of the monetary base in our fragmented and fragmenting monetary union will transform itself into a substantial increase in productive investments.
“The result of this is going to be an equity run boost that will prove unsustainable,” he said. >> Read More