Monday, April 20, 2015

20/4/15: Greece moves in with public sector capital [cash] controls


And... we have first round of [long-expected] capital controls in Greece: http://www.ft.com/intl/fastft/310542/athens-forces-local-governments-send-cash-central-banks. Per Bloomberg report, this covers term deposits: http://www.bloomberg.com/news/articles/2015-04-20/greece-moves-to-seize-local-government-cash-as-imf-payment-looms.

Which means... capital controls and an impact [of unknown magnitude so far] on capital spending and multi-annual spending lines, let alone on current spending.

Update: in response to some questions on the above, here is my view of risks arising from the above move by the Greek Government:

  1. This points to a rather desperate situation in terms of cashflow in Greece. With three payments of maturing debt looming, Greek Government is now clearly and openly signaling lack of cash. As such, this move is a potential precondition to a default, although it is not necessarily a signla of such.
  2. Transfer of cash into CB accounts means that the central authorities can have a more direct control over expenditure by the local authorities, which can have a negative impact on payments of current liabilities (e.g. wages, salaries, bonuses, pensions etc) and on some contracts, including capital expenditure and procurement contracts. Non-payments and payments delays to contractors are likely to rise as well.
  3. Over longer term, such procedures can have adverse impact on local authorities investment plans.
  4. Finally, transfer of cash implies reduction in deposits in the commercial banks which are currently experiencing significant private deposits withdrawals. The net impact is to further destabilise banking sector balance sheets. 
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