Monday, June 29, 2015

29/6/15: Greek Options & Default Contagion Mapping

Couple of interesting charts on Greece.

First up: what are the options?
Source: @MxSba

Interestingly Greece already has capital controls, but yet to miss (officially) and IMF payment. Now, even if there is a deal, Greece will still have to go into the arrears on IMF, unless they found that proverbial granny's couch from which they can squirrel away few bob (EUR1.6 billion that is). We also have an already scheduled referendum. Which, according to the chart is a dead-end. Which it is, because its outcome is either rejecting a non-valid deal or accepting a non-valid deal. Though, presumably, the non-valid deal can be revalidated by the Troika (Institutions) in a jiffy.

In short, the chart above doesn't help much.

Now, a default trigger table and a map:

Source: both via @jsphctrl

Non-payment to IMF can trigger (though does not have to) default on EFSF and holdout private sector bonds (pre 2004). Default on T-bills (short term bonds) triggers privately held bonds excluding holdouts and new bonds. Everything else is fairly simple. Now, per table above, we are in the 'Publicly Acknowledged' blue-shaded area (any delay on payment will be known at this stage and avoiding a public declaration will be hard, if not impossible, especially given political stalemate).

  • Non-payment to IMF triggers default on EFSF, and likely to trigger default on bilateral EU loans.
  • Non-payment of EFSF loans triggers nothing with any certainty.
  • The worst contagion is from PSI bonds default. 
Special note to CDS triggers: basically, bigger risks are from SMP (ECB) bonds, PSI (private) bonds, and post-PSI (private) bonds. EU loans and holdouts from PSI bonds are dodos. 

Enjoy playing with the above...

29/6/15: Greece & Grexit: In Europe, what the bank does, the kings say

Couple of interesting items on on Greek crisis:

Bloomberg prints an exercise in extrapolating Greek devaluation to Mexico peso crisis. It is an interesting exercise in so far as it does indicate (imperfectly) one side of the 'pain coin' currently spinning in the air. But it does not provide for any realistic comparatives to the other side of the same coin: the side of Greece not opting out of the euro area. Suppose the estimated path in the Bloomberg chart is correct and Greece, exiting the euro does face a devaluation 'bill' of some 300 percent-odd. As Bloomberg article says, there will be pain. Huge pain. Now, suppose Greece does not opt for direct devaluation. Then what? Then - exactly the same adjustment will have to happen via internal devaluation. Absent inflation (of any significance) in the euro area (and even given the ECB target inflation), this means all of this adjustment will be carried by Greek people. Except, with devaluation and exit, Greece will still retain internal markets for adjustment: with reforms (not guaranteed by any means), and with some pain taken on the side of capital / funding, it might ameliorate the period of post-default devaluation (the 'jump' stage in the chart below). Staying in the euro clearly implies zero adjustment on capital side, with all adjustment on households' side (employment, earnings, pensions etc). In addition, staying with euro implies no imports substitution (no price effects), exiting implies devaluation-driven imports substitution. Finally, staying with the euro implies no exports boost from devalued currency.

Source: Bloomberg

So the Bloomberg exercise is fine and interesting, but one-sided ad extremum.

Which rounds us to the latest news from the ECB. With Greeks requesting EUR6 billion increase in ELA and ECB rejecting it, Reuters reports a comment from a source on the situation:
"Commenting on the expected extension of existing emergency funding, one person said: "It doesn't make sense to stop it now. The banks are not able to pay it back anyway. So if you froze it for another two or three days, it wouldn't make any difference."" Except, of course, it does make perfect sense: if the ECB were to extend ELA, there would not have been capital controls (note: I am not suggesting the ECB should have done so - that's a different matter). However, without ECB support for ELA uplift, we have capital controls. Which sends a clear message from Frankfurt to Greek voters: this is what you will have to live with if you go against us. 

And this neatly dovetails with what Jean Claude Juncker said to the Greek voters earlier: "You should say ‘yes’ regardless of what the question is.” 

Because whether Reuters wants it or not, in Europe, what the bank does, the banks' kings say.

29/6/15: Juncker to Greece: "say ‘yes’ regardless of what the question is"

Ok, folks. I never was a fan of Jean Claude Juncker, the [one of oh so many] European President.

But, honestly, where does one go from this:

Jean-Claude Juncker, the [EU] commission’s president: “I love you deeply - You shouldn’t commit suicide because you’re afraid of dying. You should say ‘yes’ regardless of what the question is.” A “no” vote in the referendum “will mean that Greece is saying no to Europe,” Mr. Juncker said.

Does anyone in Europe believe this to be a reasonable or functional basis for attempting to resolve the crisis? Irrespective of whether you take Greek side or creditors side (I can spot reasonable points on both ends of the argument), how can the above be construed as anything but a wholesale insult by a hopelessly out-of-touch-with-reality apparatchik?

There is really nothing one can add to this, other than convey a deep sense of basic, human, natural sense of horror...

Sunday, June 28, 2015

28/6/15: Grexit with Help: Hans Werner Sinn

My favourite Bad Dude of German Economics, Hans Werner Sinn on Greek crisis:

Orderly Grexit is, in my view, still more disruptive and costly to all sides than a facilitated debt writedown and restructuring, while allowing Greece more time and fiscal room for implementing real reforms (as opposed to the currently proposed reforms, which are aimed solely on addressing short term fiscal imbalances).

Truth is - Europe has the means to meaningfully help Greece, as well as other 'peripheral' states, to get back onto growth path consistent with long term sustainability (in Greek case, we are talking about 3.5-4 percent annual growth averaging over a good decade). What Europe lacks is the will.

28/6/15: IMF Gun, Greek Voters

Just as the Greek Parliament engaged in a vote to hold or not to hold a referendum on Troika proposals, the IMF has decided to end any hope for any referendum to have any basis for validity. As noted by ZeroHedge (, the IMF chief told BBC that Greece can vote as much as it wants, but by the time the referendum is held next Sunday, there won't be any proposals standing that a vote can address in any shape or form. The reasons is that the current 'bailout' offer is only good if accepted before July 1st when the current programme expires.

Christine Lagarde also seemed to have been implying in her statement that the creditors have zero interest in working with Greece unless Greece accepts their demands in full prior to the referendum or unless the voters support the (by-then unavailable) 'bailout' in a referendum. In other words, Madame Lagarde had just issued an ultimatum directly to Greek people (if you do vote, vote as we want you to) and to the Greek Parliament (as you vote on referendum, vote as we want you to).

Funny thing, European democracy... as Italian voters should know...

Saturday, June 27, 2015

27/6/15: Greek Political Outlook: June 2015

As Greece is set for a referendum on the bailout, here is the latest opinion poll:


In short, if there is an election called now, it appears Syriza-led Left will win with a stronger mandate (187 total seats against January outrun of 162 seats).

You can see more detailed polls results here: Greek referendum polls are covered here:

Meanwhile, the dreaded Plan B (forced default and, associated Grexit) now appears to be Plan A for the euro area: All the while, EU 'leaders' continue to spin various versions of their objectives and intentions, as evidenced by the European Council President, Donald Tusk's most recent statement that "Greece is & should remain euro area member. In contact with leaders to ensure integrity of euro area of 19 countries". Whatever this means, anyone's guess, but referendum is the most democratic form of governance one can imagine in modern setting and the 'bailout' deal faced by the Greek Government is such a significant alteration of the structural conditions to be endured by the Greek people that a referendum is de facto required in order to either accept or reject these conditions. The problem is as follows:

  1. A democratically elected government sees its electoral mandate fully contradicted by the 'bailout' offer;
  2. The Government has no option but either accept the 'bailout' terms (and thus violate its own electoral mandate) or reject it (and thus impose an outcome - default and Grexit - that is not supported by the majority of the electorate). 
Thus, like Syriza or not (I am with the latter camp), but it has no ethical choice to make other than conduct a referendum. Anyone claiming that in a representative democracy an elected Government has a mandate to violate in full its electoral mandate (thus accepting the 'bailout' offer as it stands) is simply anti-democratic. In a representative democracy, an elected Government has only one feasible mandate - to execute its electoral mandate.

Note: I am still barred from using my Twitter account.

27/6/15: Surreal World of Twitter...

The surreal nature of social media is that in failing to protect us from spam and bots, it actually blocks those of us who genuinely interact on social media without commercial interest.

Thus, I have now been blocked by Twitter for "suspicious automated activity" despite the fact that there is no evidence on my timeline of any activity that fits their own definition of the said 'suspicious automated activity'.

My request to the Twitter Help team to identify the said 'suspicious activity' went unanswered, despite the team attempting to answer my other queries.

I have no recourse on the matter. Twitter has only one default option for correcting for their own abuse of their rules: they offer to send one an SMS message with a code that unlocks one's account. As it happens I have no mobile coverage where I am over this weekend.

Logic implies, Twitter team might just send the said code to my personal email. They have my email, as they used to communicate with me their useless replies. But no, the drones of Twitter Help are incapable of generating anything as creative as offering a code via the only channel of communication open to me.

And so we have it: false accusation of suspicious 'automated activity' generates actual 'automated activity', dumb and irresponsive to actual needs of the Twitter account holders, inflicting the very harm that Twitter purports to minimise.

Well done, Twitter!

Friday, June 26, 2015

26/6/15: Russian Economy: Domestic Demand Still Weak in May

Some latest Russian stats to scare the pants off everyone:

  • Investment is down 7.5% y/y in May and in January-May cumulative drop in Investment is 5% y/y. 
  • Retail sales are down 9% y/y in May and down 7.5% y/y in January-May 2015. January-May seasonally-adjusted sales, however are down primarily due to January drop.
  • Real disposable incomes are down 5% y/y in both April and May.
  • Industrial production is down 8% y/y in May, January-May decline is 4%.
  • Estimated GDP is down 3.2% y/y in January-May 2015 based on Economy Ministry estimates and 3.4% y/y based on Vnesheconombank estimates. This suggests acceleration in contraction compared to 1Q 2015 when the economy shrunk 2.2% based on first revision of the earlier estimate. Latest consensus forecast is for full year real GDP decline of 2.7-3.5% on 2014.  Which is an improvement on past forecasts. 
Problem is, fifth month into the year, and the signs of stabilisation are still quite contradictory and major parameters on domestic demand size are still volatile. 

26/6/15: Grexit and European Banks

In the tropical heat of #Grexit, which banks get sweats, which get chills? Two charts via @Schuldensuehner :

Note increased (speculative) exposures at Deutsche and Barclays, RBS and Commerzbank... which kinda jars with the conventional wisdom of uniformly reduced exposures. Total end of 2014 exposures were at USD44.5 billion, which is basically marginally down on Q4 2012-Q4 2014 period.

You can see pre-crisis debt flows within the Euro area here:

Thursday, June 25, 2015

25/6/15: Tipping my hat to Karl Whelan on Official Ireland's Moralising...

UCD Professor Karl Whelan just finished a concise and thorough demolition job on the Irish Government's moralistic and uncouth bragging about the 'successful adjustments' that, in their view, stand as a contrast to the Greek case. Here's his twitter line:

Nothing to add.

See Karl's timeline here:

25/6/15: Monetising Greece

Recently, I mused about cash balances in Greece being monetised by the ECB.

Here is some evidence. First Greek holdings of cash:

Next: Eurosystem ELA:

Wednesday, June 24, 2015

24/6/15: Ifo Miss is Not a Biggy...

Ifo business climate index for Germany fell from 108.5 in May to 107.4 (expected 108.1) in June, while the business expectations index was down from 103 to 102 (also missing expectation for 102.5) and the current assessment index fell from 114.3 in May to 113.1 in June (missing expectations for a decline to 114.1).

For all the media chatter about missed expectations, Ifo index is trending at levels consistent with close to 3% growth and well within the range of the average for Q1 2013-Q2 2015 period.

As chart above shows, Ifo has been signalling strong growth momentum in Germany for some time now, with volatility of the index reading around period averages being less pronounced than for the euro area as a whole.

The chart also shows recent uptick in economic climate conditions in the euro area as a whole. When we look at period averages, one interesting sub-trend to watch is the step-up change in growth conditions in the euro area as opposed to highly steady growth conditions in Germany.